PSE index seen to close at 8,600 level by end-2018
COL Financial Group, Inc. expects the Philippine Stock Exchange index (PSEi) to close at the 8,600 level by the end of the year, revising downward its earlier projection following higher than expected inflation figures and the continued outflow of foreign funds from the local market.
The local brokerage firm identified a number of risks that the bourse encountered during the first half of the year, including faster inflation, delays in the implementation of rate hikes by the Bangko Sentral ng Pilipinas (BSP), and the movement of funds away from emerging markets.
This prompted COL Financial to lower its end-2018 projections by 7.5%, from the 9,300 level it predicted last February.
“The problem was the market in January was at 9,000 and everybody was so optimistic. So there was no room for any error... but we had more negatives coming in, so emerging markets became out of favor,” COL Financial Chief Equity Strategist April Lynn C. Lee-Tan said in a media briefing in Ortigas Center on Monday.
The market has also seen net foreign outflows for 25 straight weeks prior to a reversal the week before, as the US dollar strengthened due to rate hikes implemented by the US Federal Reserve.
The new 8,600 projection will translate to a price/earnings ratio of 19.8x.
Amid this downward revision, COL Financial expects the market to go no lower than its 6,986 close on June 25.
“We believe that 6,900 was in fact the low of this correction. We’re confident that this is already the bottom... 6,900 is already an adequate magnitude of the correction,” Ms. Tan said.
Ms. Tan also noted the Philippines’ economic growth remains to be favorable, which could lend support to the main index’s rise.
COL Financial is banking on various catalysts for the market’s recovery, including higher than estimated earnings growth for local firms; inflation to peak; the US Fed to stop raising rates; and firms in the US and China to continue reporting strong corporate earnings despite the trade war.
“The market wants to see the BSP raising rates... The market already anticipates that inflation will be high. It wants the BSP to taking steps to control inflation... In terms of what investors would like to see, they want them to raise rates,” Ms. Tan said.
Ms. Tan added that they expect two more rate hikes at 25 basis points each, or one rate hike at 50 basis points, for the rest of the year.
The company is keeping a bullish outlook on the property, telco, and gaming sectors for the rest of the year. Its stock picks include Ayala Land, Inc., Megaworld Property Corp., Bloomberry Resorts Corp., D&L Industries, Inc., Metropolitan Bank & Trust Company, and Security Bank Corp.