Declining risk factors provide opportunity for stock investors
DIMINISHING RISK factors are opening up opportunities for investors to accumulate more stocks in the second half of 2017 in preparation for the next year and beyond, as COL Financial Group, Inc. pegs the Philippine Stock Exchange index’s (PSEi) fair market valuation at 8,700 by year end.
COL Financial Vice- President and Head of Research April Lynn L. Tan said there is a decreasing share of stocks with a cautious outlook, from 27% in January to 17% as of now.
“When we counted the market weighting of cautious sectors it was around 27%. On the other hand, the weighting of the cautious sectors this time around is down to 17%. So less talaga,” Ms. Tan said in a mid-year briefing to COL Premium clients in Ortigas over the weekend.
She attributed this to a more positive outlook on the global economy, optimism on the passage of the proposed tax reform program, as well as the growth across various sectors.
“It’s the first time we’re seeing a synchronized global economic growth in a long time. And what this means for us is at least for the Philippines, I think everyone was caught by surprise when they saw exports growing positively… and even OFW ( overseas Filipino workers) remittances, it’s been several years since people were saying this will be collapsing,” Ms. Tan explained.
She also pointed to the positive developments of the Tax Reform for Acceleration and Inclusion Act ( TRAIN), noting that investors are seeing more clarity now that President Rodrigo R. Duterte has signified the bill as one of his priority measures.
“Earlier this year, it was all talks. There was a lot of skepticism on whether or not it will pass… Now there’s more likelihood that tax reform program will be passed. Our President has very strong political capital, so in line with that I think medyo malaki ang chance na mapapasa ’to,” Ms. Tan said.
COL Financial also discussed “positive surprises” among the gaming, telecommunications, consumer-retail, financial, and property sectors, despite the more negative performances of the mining, power, and cement sectors.
For the short term, COL Financial Chief Technical Analyst Juanis G. Barredo said seasonality will make trading weaker in August, as records from 2003 to 2017 show that what is referred to as the “ghost month” recorded the biggest loss at 1.6%, followed by November at 1.3%.
“August and November track high corrective periods. These could provide good buying windows thereafter,” Mr. Barredo said. Meanwhile, March and July are seasonally seen as the strong months, which gained an average of 2.1% and 3%, respectively.
This seasonality could put a drag on the bellwether index’s rally to break through the major resistance of 8,136, which means that the PSEi would have to correct itself or consolidate more before climbing to fresh highs.
Mr. Barredo pegged the consolidation of stocks within a range of as low as 7,718 to 8,136.
Further, Ms. Tan said stocks at the beginning of the year were priced at 18 to 19 times higher than its earnings, but noted that fundamentals are finally catching up.
“Our earnings have caught up with the price,” she said.
Among COL Financial’s stock picks are property developers Megaworld Corp. and Ayala Land, Inc., Metropolitan Bank and Trust Co., Robinsons Retail Holdings, Inc., Bloomberry Resorts Corp., Manila Electric Co., and Semirara Power and Mining Corp.
The brokerage also included Vista Land and Landscapes, Inc., East West Banking Corp., Union Bank of the Philippines, Inc., Melco Resorts and Entertainment ( Philippines) Corp., and Integrated Microelectronics, Inc. as less liquid stocks among its picks.