BPI sees PSEi retesting 8,000 in 2017

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Philippine shares are likely to register gains this year on the back of a strong domestic economy shielding it from global uncertainties.

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BPI Trade Chief Executive Officer Mike Oyson expects the benchmark PSEi to retest the 8,000 level this year, especially if the tax reform package of the Duterte administration makes it through Congress and is enacted into law.

During BPI’s Market Outlook 2017 briefing late Thursday, Oyson said global uncertainties will not pose much of a risk as a robust domestic economy cushions the negative impact of external headwinds.

Among the risks are the protectionist stance of US President Donald Trump, political play in China, and potential disintegration of European Union after Brexit and rising interest rates.

“We are still in the supercycle. And we can enter supercyle part 2, depending on the policies of the Duterte administration,” he said.

“Local retail investors drive the market today; there are zero foreign funds present. So local players should stay invested to benefit once the foreign funds flow back into the Philippines,” Oyson said.

BPI Trade Research Head Haj Narvaez said the fair value of PSEi may reach 8,000 to 8,200, higher than industry forecasts of 7,500 to 7,800.

“The healthy macroeconomic picture would limit downside for the market. And given the market’s attractive valuations and with potential tailwinds from the passage of the tax reform package as well as higher fiscal spending, the market would likely rally in the second half of 2017 and potentially breach the 8,000 level,” Narvaez said.

Citing an inter-company study, Narvaez said the way to value a stock or market is through price-to-book value (P/BV) than the commonly used price-to-earnings (PE) ratio.

Contrary to consensus view that the PSEi is “expensive” due to 17x PE ratio with moderate earnings per share (EPS) growth at 9 percent to 9.5 percent, Narvaez said there is still upside over the horizon because of the PSEi’s current 2.2x P/BV. This is lower than the average 2.5x P/BV ratio in five years.

Narvaez pointed out a moderate 9 percent EPS growth forecast is a result of heightened competition among companies.

BPI Trade, the online trading platform of BPI Securities Corp., is recommending shares of Ayala Land Inc., Jollibee Foods Corp., Puregold Price Club Inc., Robinsons Retail Holdings Inc. and Semirara Power and Mining Corp. based on “attractive valuations.”

2017 GDP up at 7.2%

BPI Lead Economist Jun Neri said the Philippine economy will grow by 7.2 percent this year, mainly on the combined impact of consumption and infrastructure spending. He also noted the continued remittance flows from overseas Filipinos and revenues from the business process outsourcing (BPO) sector.

His said a foreign exchange depreciation of P50 to P51 per dollar this year will serve the economy well, benefitting the remittance and BPO sectors. The peso depreciation is still conservative compared to the currency depreciation of neighboring countries, reflecting the underlying strength of the economy, Neri noted.
If “something major happened in the US and EU, we can easily hit $54 per dollar by the end of the year,” he said.

An interest rate hike is inevitable this year, which also presents a “silver lining” as it will put a buffer on the inequality between higher rental rates in a low interest rate environment, Neri noted.

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