DESPITE the current volatility plaguing stock markets around the world, a different story is expected for Philippine equities in the next 12 months: growth opportunities from campaign spending in the run up to the May 2016 elections.
Investment bank First Metro Investment Corp. (FMIC) noted the economic headwinds are mainly coming from the likelihood of an interest rate hike in the US and the slowdown in China’s economy.
It said that consumer stocks will largely benefit from the pre-election spending.
“We see softness in the market as valuations de-rate on slower economic growth, weak earnings and foreign outflows. But in the midst of such weaknesses, we anticipate opportunities. We are positive about the market over the next 12 months as election spending gains momentum,” Roberto Juanchito Dispo, FMIC Capital Markets Development Committee chairman, said in the August issue of the “The Market Call,” the bank’s monthly research on capital markets.
Stocks with strong re-rerating catalyst that can ride market volatilities and issues that can leverage on election spending are the preferred portfolio holdings, Dispo noted.
“Listed companies that have exposure to staples, liquor, tobacco and fuel should be the main beneficiaries of election spending,” he said.
The benchmark PSEi has been observed to have espoused a correlation to Dow Jones Industrial average in June and July, the months of significant uncertainties, mainly because of speculations about an interest rate increase in the US that continues to spur the dollar stronger, according to the FMIC official.
“In addition, continued decline in commodity prices and worries on China led to a decline in Asian markets… However, the index performed well in the second and third weeks of July as concerns over Greece abated. The 7 percent year-on-year growth in China’s second quarter GDP results beat estimates,” according to the report.
“Overall, positive reception from Philippine corporate earnings might make the local market resilient against further external shocks (e.g., the looming Fed rate hike, slowdown of China’s economy). “
The PSEi is in line with FMIC’s capital-raising target of P200 billion for the whole of 2015, as it already P104 billion has been raised in the first half 2015, the investment bank noted.
FMIC data show that the financial sector fell by 3.8 percent in July, the industrial sector by 0.7 percent and the mining and oil by 12.2 percent.
The winners in July included holding firms (up by 0.3 percent), property sector (2.6 percent), and services sector (3.5 percent).
The total turnover rose by 3.1 percent in July from an 18.-percent drop a month earlier. Net foreign selling reached P8.7 billion, an improvement from the P11.6 billion in June.