Stock index seen rising to 7,900 next year

Financial services giant Sun Life of Canada sees the local stock barometer recovering to 7,900 next year as the domestic economy regains prepandemic momentum, but it’s not convinced yet that a new bull cycle has begun.

In a press briefing on Friday, Sun Life Investment Management and Trust Corp. president Michael Gerard Enriquez said such a Philippine Stock Exchange index (PSEi) outlook would be supported by a 26-percent average growth in earnings per share to reach a sum of P443.73 in 2022.

This 2021, Sun Life expects a full-year PSEi earnings growth of about 40 percent, which already takes into account the recent changes in the composition of the index, with its three newcomers this year: Converge ICT, AC Energy and Wilcon Depot.

Enriquez said this year, the house view was that the PSEi would end at 7,200, but he was hoping that the market may overshoot this level.

As of Friday, the PSEi closed at 7,192.17, almost unchanged from its end-2020 finish. However, this marked an improvement from the 8.64-percent decline in 2020.

“There might be a potential Christmas rally given that the Omicron [COVID-19] variant is less virulent from original expectations, so that might be some positive catalyst for the market to continue to rally for this year,” Enriquez said.

Sun Life’s 7,900 PSEi outlook for next year assumes that investors will be willing to pay around 16.4 times potential earnings, lower than the five-year average multiple of 18 times earnings.

By sector, Sun Life is most bullish on banks, telecom and construction companies in the coming year.

Apart from earnings growth amid a more favorable economic environment in the coming year, Enriquez said the next driver for the stock market would likely be the return of foreign fund flows.

During this pandemic, especially when COVID-19 cases were at their peak, there was an exodus of foreign funds from the market. But now, he noted that some were starting to trickle back.

“Of course, the next question is what would compel them to go back and buy the Philippine market? Of course, it starts with earnings. Second is [they will be] looking at how the economy will start to grow, and next year is special because it’s presidential election year, as well. So there may be some additional catalysts for foreigners to come in, especially right after the elections,” Enriquez said.