PSEi seen to hit 8,200 after US Fed hangover

BPI Securities CEO Michaelangelo Oyson on Wednesday’s stock market briefing

LOCAL stocks will continue to face tough times ahead until the US Federal Reserve starts raising interest rates, after which the local stock barometer could stabilize and eventually revisit its fair valuation of around 7,600 before moving towards 8,200 next year.

This is the view of stock market veteran Michaelangelo Oyson, chief executive officer of BPI Securities Corp., in a press briefing on Wednesday. But until there’s clear guidance on the US Fed’s interest rate direction, he said the Philippine Stock Exchange index would likely trade at a wide range between 6,600 and 7,200.

“This is one of the toughest times for the stock market that I’ve been through. It reminds me of the Asian crisis, the global crisis of 2008 and some semblance of what happened in 2013,” said Oyson, who has a 17-year experience in the stock brokerage industry including stints in New York, Singapore and Hong Kong.

The guidance from US Fed chief Janet Yellen is a key overhang for the market alongside the economic woes in China, which in turn are seen affecting the timing of US Fed’s interest rate hike or the normalization of US rates from the near-zero level at present.

This year, from a peak of $1.2 billion worth of inflows in April to May, Oyson estimated that foreign funds were now in a net selling position to the tune of $236 million. Such funds flow data, Oyson said, would give an important guidance on where the market is heading because what’s happening at the stock market had “little to do” with the country’s still rosy macroeconomic fundamentals.

“We’re just part of the collateral damage in terms of whats happening in China, Middle East and on the concerns on the US interest rate hike,” Oyson said.

In this regard, Oyson said the stock market was not yet out of the woods because the exchange rate had yet to stabilize. He said the peso would likely overshoot 47:$1 level and beyond until there’s clarity on the US Fed’s rate hike.

“Currency is important because it will have an impact on foreign funds’ allocation. If they expect the currency to weaken, they will pull out funds ahead of further depreciation so there’s a second-order effect,” Oyson said.

But Oyson pointed out that after China’s surprise devaluation of the yuan, there are talks that further devaluation may be sanctioned for Asia’s largest economy to regain competitiveness.

The conventional strategy in a volatile, he said, would thus be to buy on dips high-quality issues. “Investors have to realize it’s very difficult to catch the bottom of the market so the strategy must be based on risk tolerance to the downside,” Oyson said.

Oyson said consumer names would likely to continue doing well given that the Philippines was a consumer-driven economy which would likely sustain a “new normal” growth rate of 5-6 percent.

By sector, BPI Securities has a negative view on banks and gaming, neutral view on property and positive view on the power sector. It has a neutral view on conglomerates depending on sector exposure.

BPI Securities’ top five stock picks are as follows:
– Semirara Mining and Power Corp., due to strong earnings and catalyst from the reopening of the Panian mine);
– Manila Electric Co., on healthy cash flow and electricity volume growth;
– Century Pacific Food Inc. (on margin improvement, strong balance sheet and favorable impact of weaker currency;
– Max’s Group Inc., on expected margin expansion and strong topline growth from store expansion; and,
– Ayala Land Inc., on sustained double-digit earnings growth, aggressive pipeline of recurring income development and substantial amount of landbank for future developments.