High liquidity could push stocks up again despite high PE ratio


The local stock market is projected to sustain its bullish mood and, possibly, reach new highs this week. Small cap stocks could benefit from the trend as the shares of the listed giants are in the expensive territory.

The Philippine Stock Exchange Index (PSEi) had breached 8,000-mark on Friday and closed at 8,030.06 or 3.33 percent higher week-on week, while the broader All Shares index jumped by 2.70 percent higher to conclude at 4,841.30.

The Friday close of PSEi is a significant milestone, but it is notably behind the intra-day high of 8,136.97 recorded in April last year.

Considering that and the current mood of the market, the general feeling is that there is the possibility for the market rising quite a bit higher in the near future.

On the whole, liquidity in the economy is strong and all that money is “looking for investment outlets,” said Victor Benavidez, nominee at Alakor Securities Corp.

About the record-setting performance on Friday, he said the market has been trying to test the 8,000-point barrier for some time but it always succumbed to correction. However, he added that hopefully the present level could be sustained.

Year-to-date, Friday’s closing surged by 15.5 percent, data from the PSE showed.

A key factor influencing investors could well be the present high PE ratio, which is estimated at 20. So, investors may turn to small board issues or small cap issues.

Nonetheless, Benavidez said that the big boards are quite at their “fair value right now” and “after all this said and done, market would again focus on the big boards.”

Meanwhile, Aniceto Pangan, trader at Diversified Securities Inc., noted that while the bullish market is intact, “profit taking will naturally happen from time to time.”

“Enormous net foreign buyings were experienced throughout the week [from P0.8 billion to P 2.4 billion week-on-week]. These were brought about by the easing credit environment, possible concerted global stimulus, stabilization of China’s economy per results of their GDP [gross domestic product], and better earnings of major US companies,” Pangan said.

According to the president and chief executive officer of the PSE, Hans Sicat, the PSEi breaching the 8,000-point mark “shows that investors confidence in our market remains high, and provides some early momentum as companies prepare to disclose their mid-year earnings results in the coming weeks.”


Please follow our commenting guidelines.

Comments are closed.