PSEi slightly up at 7,277.74 despite global slump

MANILA, Philippines—Most local stocks initially slipped alongside a global slump but stabilized at closing on Tuesday, aided by a favorable arbitration ruling on water utilities.

The Philippine Stock Exchange index gained by a modest 1.11 points or 0.02 percent to close at 7,277.74, staying afloat for the seventh session.

A favorable arbitration ruling boosted shares of MPI (+10.75 percent) and DMCI (+1.79 percent). MWC also gained by 6.52 percent.

The appeals panel of MPI and DMCI’s water venture Maynilad Water Services Inc. and regulator Metropolitan Waterworks & Sewerage System (MWSS) ruled in favor of Maynilad’s alternative rate rebasing proposal, allowing an increase in average basic water charge.

Elsewhere in the region, markets were mostly lower following a decline of over 300 basis points in the Dow Jones Industrial index overnight. The culprit was still the collapse of oil prices.

A research note from HSBC issued on Tuesday upgraded rating on Philippine stocks to “neutral” from “underweight.”

“Economic growth has been the most resilient in ASEAN (Association of Southeast Asian Nations) over the last two years. Inflationary conditions are beginning to ease, and we expect no more rate hikes until end-2015. Business confidence remains high and corporate earnings growth estimates are rising, with upgrades across the Street. Market valuations, however, look stretched at current levels,” the research said.

The HSBC research said the Philippine economy has remained in a sweet spot. “President Benigno Aquino continues to enjoy the highest level of support from Congress and the Senate. While some market observers think the pace of the reform agenda could be faster, various landmark bills covering issues, such as a ‘sin tax’ and reproductive health, have been passed, while fiscal consolidation is continuing through measures to increase the efficiency of tax collection,” it said.

On a sector level, HSBC favors consumer, infrastructure and business process outsourcing-related stocks. It noted that corporate earnings forecasts had risen in the past six months and now stood at 13 percent for 2015.

But at a forward-looking 18.8x price to earnings ratio, HSBC said local stocks have remained richly valued compared to the five-year average.