Think tanks say stock market to experience uncertainty this year

The local equities market may continue to see a large degree of uncertainty this year despite the bright macroeconomic outlook in the next 12 months, according to the latest issue of the Market Call, a joint publication by First Metro Investment Corp. and the University of Asia and the Pacific.

In the report, FMIC and UA& P said while the local equities market started off the year on a positive note, this may not be sustainable because current valuations are not cheap.

“The Philippine equity markets managed to start 2017 surprisingly well. However, we do not think the strong performance so far will be sustainable. While we acknowledge that economic fundamentals are expected to improve further – driven by higher infrastructure spending – and have a cushion to absorb any unexpected events, valuations are not cheap, Market Call said.

For 2017, FMIC and UA&P see two possible scenarios happening on the local equities front.

“We see two scenarios playing out this year. Under the first scenario, we believe returns will be challenging in the first half as investors digest the bulk of the headwinds in the market such as higher interest rates, weaker currency and fund outflows,” the report said.

Under the second scenario, investors are seen getting used to the large degree of uncertainty and as such, the power of fundamentals should eventually play out.

“Therefore, outperformance this year will come from a combination of selective picks and active or nimble management.”