After the stock market entered the ‘bear’ territory in the first six months of 2018, it bounced back in July and is expected to sustain its strong rebound in the coming months.
From a record high of 9,078.37 points in January, the bellwether Philippine Stock Exchange index plunged over 20 percent in June to 6,923, as inflation rate accelerated, driven by various factors such as the implementation of package 1 of the Duterte administration’s tax reform agenda, steady rise in world crude prices and tight supply of rice.
Foreign investors have exited the Philippine equities market since February mainly because of the aggressive US Fed rate hike and the strengthening of the US dollar.
Concerns over the US-China trade war and the delay in interest rate hikes by the Bangko Sentral ng Pilipinas are hurting investors’ sentiment.
As as result, foreign investors have become net sellers by P68.6 billion as of Aug. 3, while the average daily turnover shrank to P7.2 billion.
Analysts, however, remain optimistic after the benchmark index began to recover at the start of the third quarter. It slowly climbed back from the bear market zone to reach the 7,800-point level.
This could be attributed to the positive outlook on the domestic economy, robust domestic spending despite the implementation of package one of the Tax Reform for Acceleration and Inclusion law and strong corporate earnings.
First Metro Investments Corp. vice president Cristina Ulang said in a briefing she expected the PSEi to rally back to the 7,900 to 8,200 levels in the second half.
Ulang said one key factor that could push the market higher was the sustained growth of the gross domestic product. The economy expanded 6.3 percent in the first half, just below the government’s target of 7 percent to 8 percent.
Corporate earnings are expected to deliver a 10-percent growth this year, while the fiscal stimulus from the massive infrastructure projects the government plans to undertake would also be a key consideration and catalyst for the equities market.
Fund raising initiatives in the capital market is also expected to recover in the second half, after a slowdown in the first six months because of the volatility in the equities market.
First Metro said capital raising this year was expected to grow by 7 percent to P773 billion, of which P220 billion would come from the equities market and P553 billion from fixed-income issues.
Online brokerage firm COL Financial is more optimistic about the market, expecting the index to hit 8,600 points by the end of the year.
COL Financial research head April Lynn Tan said there were strong indications the market already hit the bottom at the 6,923-point level, including the magnitude and duration of the ongoing correction.
“We continue to recommend slow accumulation of a diversified portfolio of stocks using long-term money, focused on blue chips that trade at attractive valuations,” Tan said.
She said most negative developments in the local and global front were already priced in the current valuation, thus the market was just waiting for fresh catalysts before resuming an upward trek.
These catalysts include inflation moderating from its peak, corporate earnings growth beating estimates, the US Fed stopping rate hikes and US-China corporate earnings remaining strong even with the trade war.
Tan said she was also expecting the domestic economy to remain resilient and strong which would continue to favor property, financial, gaming and retail sectors.
She said despite the rising interest rates, she preferred the property sector because the rate increases remained generally acceptable which could enable real estate companies to expand their residential sales.
“The rate increases are not the kind of increases [which] aim to prevent a bubble. We not yet overheating for BSP to be aggressive in raising rates,” Tan said.
Tan is also bullish on the telecommunication sector despite the possible entry of a third player. “On telco, the delay in the announcement of third telco player has allowed Globe and PLDT to strengthen their positions. It would be difficult for the third telco to compete financially speaking, because Globe and PLDT have become stronger,” Tan said.
Tan said for the cement sector, prices started to improve while demand was expected to pick up. Meanwhile, the gaming sector continued to enjoy strong gross gaming revenues.
Tan’s stock picks in the property sector are Ayala Land Inc. and Megaworld Corp., while her top choice for gaming is Bloomberry Resorts Corp. For banks, Tan likes Metropolitan Bank & Trust Company and Security Bank. Among consumer stocks, she favors D&L Industries. For power, Tan is betting on Semirara Mining and Power Corp. For conglomerates, she eyes Ayala Corp.
Tan’s other top picks are Globe Telecom for telecommunication and Eagle Cement for cement.