The Philippine equities market will see volatile and corrective trading over the short term towards the end of the year until the Duterte administration carries out its first moves to implement its 10-point economic agenda, stock brokerage COL Financial said in a briefing.
In a press briefing on Monday, COL Financial Vice President and head of research April Lee Tan said the market is “vulnerable to a correction in the short term” towards year-end, which the firm attributed to uncertainty about the implementation of the government’s economic agenda, the high valuation of the local market, as well as jitters from the global scene.
“We could see the market correcting, sideways until we see economic plans of the government being rolled out,” Tan said, noting that COL is currently retaining its 7,300- to 7,400-point forecast for the Philippine Stock Exchange index for end-2016, but noted the market could possibly reach as high as 7,800 points.
“The First six months of the administration may be disappointing, (in terms of a) possible slow down of infrastructure spending . . . Foreign buying would be coming in every time the market corrects.
I think the Philippine growth story is more attractive globally. And this correction phase is a good opportunity to buy into the market,” Tan said.
For the short term, local equities may be affected by primarily four factors, Tan said: The possibility of a ballooning budget deficit, a possible slowdown in government spending growth, the high valuations of the PSEi, and the condition of the international markets.
She said that with the negative slant of the correction phase, the market might present opportunities to buy with attractive prices.
“Given the Duterte administration’s plan to cut taxes and increase spending on infrastructure, there is a possibility that the country’s budget deficit would balloon, and this could lead to a downgrade in the country’s credit rating,” Tan said.
She explained that a negative impact on the credit ratings might lead to higher interest rates. That’s why the government should work on its efforts in increasing government revenues through VAT and higher excise taxes, Tan said.
“Valuations (in the market) are also no longer attractive, with the PSEi currently trading at around 20x estimated P/E (price to earnings) ratio for 2016. Moreover, the potential upside to our end 2017 target of 8,400 is limited. This makes the market vulnerable to sell offs, assuming that companies come out with disappointing earnings results. It also increases the likelihood of share placements as companies take advantage of their high levels of valuation,” she said.
“Government spending growth could slow down in the short term, which is a normal phenomenon when a new administration takes over,” she added.
Tan also took note that the PSEi might be affected by global factors such as Fed rate hike concerns and other factors that may come at play.
COL Financial also presented its stock picks for the year, which included: Metro Pacific Investments Corp., Metropolitan Bank and Trust Company (Metrobank), BDO Unibank Inc., Cebu Air Inc., Ayala Land Inc., Robinsons Land Corp., SM Investments Corp., D&L Industries Inc., Concepcion Industrial Corp., and Century Pacific Food Inc.
For smaller stocks, the online brokerage firm said top stocks to buy are EastWest Banking Corp., EEI Corp., First Gen Corp., and Energy Development Corp.
COL Financial consultant Marvin Fausto suggested that the PSEi might reach the 18,000-point level by 2025, assuming that the market would grow an average of 10 percent yearly from 2015 to 2025. He based this on the 12.7 percent average annual growth of PSEi from 2005 to 2015, climbing from 2,096 to 6,952.