MANILA - The Philippine Stock Exchange index (PSEi), the barometer of the performance of the local bourse, will likely hit a new record high and close next year at the 7,800 territory, strongly rebounding from the current weakness seen to persist for the rest of 2014.
The uptick in local share prices will be driven by low interest rates, strong momentum of economic growth, and higher earnings growth of listed companies, said officials of leading brokerage firm COL Financial Group Inc.
“The market would most likely remain weak for the remaining part of 2014 due to concerns of rising inflation, political noise and the PSEi’s fair valuation,” the brokerage firm said.
However, the stock market will exit the consolidation phase in 2015, with the second half of this year offering the best opportunity to start positioning, it added.
Since closing 2013 at 5,889.83, the benchmark index has risen 16.55 percent or 974.99 points to 6,864.82 despite volatility in the first half. It peaked at 7,392.20 on May 15, 2013.
“The good news is we have two conviction calls: first, the PSEi will exit consolidation as it approaches 2015. And we also expect PSEi to hit a new high of 7,800 by end-2015,” said April Lee-Tan, vice president and head of research of COL Financial.
The bullish 2015 outlook is backed by slower than expected monetary tightening globally and only a slight increase in interest rates domestically; the growing momentum of the Philippine economic growth due to resilient consumer spending and higher investment and infrastructure spending; and the higher earnings per share (EPS) growth of listed companies, Tan said.
Specifically, COL Financial expects EPS to grow 14.5 percent next year from the five percent forecast this year. Price-to-earnings ratio or P/E, an important gauge in valuing a company, will ease to 16.9 next year from the estimated 19.4 this year.
Tan said the climb in the EPS will be driven by banks (+15.3 percent), conglomerates (+15.2 percent), power (+20.9 percent) and property (+13.7 percent) sectors.
In particular, COL Financial favors banks given the rapid loan growth and normalization of trading gains; conglomerates due to the rebound of banks’ earnings and resilience of other subsidiaries; power sector amid higher generation capacity and normalization of revenues and expenses; and property companies because of strong demand for residential projects and continuous expansion of rental portfolio, Tan said.
On the macroeconomic side, Tan said the Philippines will enter a four-decade demographic “sweet spot” next year, wherein 63 percent of the population will be productive, resulting in a robust economic growth.
However, investors have to contend with the weakness in the stock market in the second half before reaping the benefits of another run-up in share prices.
“The second half will bring on more volatility than we did in the first half. That would again open another trading opportunity for range trading,” said Juanis Barredo, chief technical analyst of COL Financial.
“Weak volume flows and feeble momentum reads would restrain upsides and keep the market bound and open to another corrective lull,” Barredo said, adding that the PSEi might retreat to the 6,500 to 6,700 level.
In the first half, average value turnover dropped 29.3 percent to P8.1 billion from P11.5 billion a year ago while net foreign buying fell 26.9 percent to P44.9 billion from P61.5 billion.