Strong fundamentals seen to fuel PH market recovery

Local stocks may consolidate in the next few months but strong fundamentals amid global uncertainties could fuel a main index recovery to 6,800 this year, a fund manager from Sun Life of Canada said.

He added that the index was expected to retest previous record highs by next year.

Michael Gerard Enriquez, chief investment officer at the Philippine unit of the global insurance giant, told reporters on Thursday that the recent sell-off in the stock market was “overdone.” He said strong fundamentals should enable the market to regain focus, especially when the unwinding of quantitative easing (QE) in the United States was fully factored in.

Enriquez estimated that about $300 million, or a third of the foreign funds that rode on the local market’s runup earlier, had now exited while the bulk would be “long-only” funds. Based on indications from foreign brokers, he said the recent shakeout had uncovered good values and was now attracting bargain-hunters.

“The market run-up was mainly driven by good fundamentals, with hedge funds pushing asset prices higher because of the QE. If you take that away—the froth as we call it—we’re back to fundamentals,” Enriquez said.

“We will see the markets moving up again once we see clarity on second-quarter earnings,” he said. Lackluster trading is seen through the “ghost month” (Aug. 7 to Sept. 4, 2013). After this, Enriquez said the PSEi could start regaining traction.

The “ghost month” refers to a period in the Lunar calendar that is believed by Asians to be an unlucky time to make big moves such as acquiring a property, getting married or investing.

Sun Life sees local corporate earnings rising by an average of 12-15 percent this year but Enriquez said that if second-quarter results would turn out better than expected, the earnings growth projection could be increased to 16 percent.

Given the steep decline in the stock market recently, he said a “realistic” Philippine Stock exchange index target this year would be 6,800 and the retesting of the recent highs could occur by next year.

At the recent bottom close of 5,800, Enriquez estimated that investors were willing to pay 15 times projected earnings compared to the price to earnings (P/E) ratio of as high as 22x when the index peaked at about 7,400.