Overpriced but justified?

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Investors will check next year if the current rich valuations can be justified according to a study done by The Market Call, First Metro Investment Corp.

Market Call Chairman Roberto Juanchito Dispo said current price-to-earnings (PE) ratio of above 20x is likely unsustainable, unless robust foreign inflows tolerate higher PEs longer than so far assumed.

“Foreign flows will continue to be driven by developed market central banks and how their policy actions will play in the bond and currency markets,” he added.

The research paper said that Philippine Stock Exchange index earnings is projected to grow 11 percent to 12 percent next year on expected higher gross domestic product (GDP).


“PSEi earnings is projected to grow by 11 percent to 12 percent next year and GDP is expected to be stronger – boosted by the much-awaited government spending and pre-election year,” Dispo said.

The Market Call is a monthly capital markets research by FMIC and University of Asia and the Pacific, which looks at the Philippines’ macroeconomy, fixed income securities and equity markets.

The market is seen to grow next year after 2014’s growth being tampered by stretched valuations, lower than expected third quarter GDP data and the falling oil prices which caused anxiety and extensive selling to foreign investing public.

Dispo said the PSEi is also expected to be driven by international markets, which are generally positive on Japan and Europe having their own versions of asset buying program, but is still cautious on US’ move to rates benchmark interest rates.

In terms of sectoral growth story, FMIC and UA&P views highly of the stocks in the consumer sector, gaming, power generation, and conglomerates with infrastructure exposure.

Consumer stocks will be driven by lower inflation and oil prices, as well as the boost in Filipinos’ disposable income and purchasing power.

Gaming sector, on the other hand, will be spiced up by the recent opening of City of Dreams Manila as many questions are raised regarding the gimmicks of their rivals.

For power-related stocks, there will be a rise in demand in the summer months which can give power companies the control over prices, while infrastructure-related conglomerates are seen to perk up on the surge of government infrastructure spending next year mostly from the public-private partnership (PPP) program.

The Market Call also listed key risks to watch for next year which includes: looming power crisis in the summer months, political noises, US interest rate hike, fund outflows, slower growth in emerging market economies, and natural disasters.

On Tuesday (December 23) before financial markets were suspended on the holidays, the bellwether PSEi went up by 0.66 percent or 47.05 points to 7,186.32, while the wider All Shares index advanced 0.55 percent or 23.19 points to 4,235.52.

December 29, Monday, is the last trading day for the year 2014, before trading starts again next year on January 5.

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