Bulls to rule stock market
The stock market bulls will continue their rampage even with the recent change in administration.
April Lynn Tan, research head of online brokerage firm COL Financial, said the Duterte administration inherited a strong balance sheet from the Aquino government that includes low debt levels and cheap production cost.
It also found a rich pipeline of infrastructure projects that are in the late stages of planning that could immediately be implemented by the Duterte administration to improve infrastructure in the country.
She cited 14 infrastructure projects worth P459 billion that are currently in the bidding process, and five projects waiting for final approval from the National Economic and Development Authority.
And with the Dutuerte administration’s thrust to reduce the approval time, Tan said awarding of contract would be cut to an average of 18 to 20 months from an average of 29 months during the previous administration.
Tan said the Duterte administration’s 10-point socio-economic action agenda would also provide numerous growth opportunities for the country.
The government’s move to keep the attractiveness of the Philippines to foreign direct investments by addressing the restrictive economic provision in the Constitution as well as accelerating infrastructure spending to five percent of the country’s GDP are likewise favorable to sustained economic growth.
The Philippines in 2015 entered the demographic window, a period of rapid economic growth driven by the expansion in the share of the productive population to over 55 percent of the whole population.
“This rapid period of economic growth is expected to last for 40 years until 2055,” Tan said. She added the Philippine economy, being largely domestic driven, was less vulnerable to external threats and developments.
Analysts are maintaining a positive outlook on the stock market despite the drop in the the bellwether Philippine Stock Exchange Index from its peak of 8,102.30 on July 21.
First Metro Investments Corp. assistant vice president and research head Cristina Ulang expects the PSEi to test the 8,000-point level, buoyed by the strong momentum of foreign flows, increased investor confidence in the sound fundamentals of the economy and the clear political mandate of President Rodrigo Duterte.
Ulang cited the double-digit earnings growth, good dividend yield and strong balance sheet of listed companies as among the factors that will continue to attract investors to the domestic equities market.
While the market will remain volatile over the next few weeks, a possible Fed rate hike by the end of the year, uncertainties surrounding Brexit and the upcoming US presidential elections may weigh on investors’ sentiment.
First Metro Investment Corp. said the current market sell-off could provide investors a good opportunity to accumulate stocks that are expected do well under the current administration.
“We see sell-offs to be good entry points to position for next year. We are not changing in our picks, as we still value in consumer staples and defensive stocks with high dividend yields,” First Metro said.
Over the past weeks prior to the sell off, the PSEi has been trading at around 20x 2016 P/E, making it an expensive market compared with other emerging markets.
BDO Unibank chief investment strategist Jonathan Ravelas said it was still possible for the PSEi to go back to the 8,000 level by the end of the year, especially if corporate earnings remain strong to justify continued high valuation.
Aside from external factors, analysts said there was also a growing concern that government’s plan to cut taxes and increase infrastructure spending could lead to a higher budget deficit and eventually a downgrade in the country’s credit rating.
While the government has already indicated plans to reduce corporate and individual income tax, which could lower revenue collection, Ravelas said investors now wanted to know how the government would be able to implement its plan to impose higher taxes on soft drinks and junk foods, also known as “fat tax,” as well as the imposition of higher excise tax on oil products to boost revenues.
Analysts said the economy though remains stable, fueled by consumer spending from increased inflow of dollar remittances and a strong business process outsourcing sector.
They expect the Philippine economy to sustain a 6 percent to 7 percent annual expansion rate as the government focuses on improving the peace and order situation in the country, building infrastructure and spreading growth across the region.