The market bulls are waiting patiently and ready to storm out of their corral as soon as COVID-19 loses its potency.
Stock market analysts still expect the local equities market to climb back to the 8,000-point level before the end of the year despite the current volatile trading conditions. Positive corporate earnings and the increasing vaccination of the population will serve as the catalysts to the anticipated rally.
COL Financial research head April Lynn Lee-Tan says in a recent briefing the benchmark Philippine Stock Exchange Index (PSEi) could hit 8,100 before the end of the year as most of the negatives have already been priced in.
The 8,000 year-end target is lower than 8,300 set by COL Financial at the start of the year, but Tan says the market’s recovery is backed up by positive economic and health data.
Concerns about the country’s inflation have eased, with many believing the rate has already peaked. The market optimism is also anchored on government’s effort to accelerate the vaccination program, especially in the National Capital Region and key cities in the provinces, in order to achieve its target herd immunity before the end of the year.
Even with the threat of the more contagious Delta variant, Tan says the government’s vaccination program is efficient and that the country has secured ample doses to inoculate 70 percent of of its 110 million population.
“We should be patient and remain positive,” Tan said.
She believes the NCR can reopen faster than the rest of the country once 70 percent of its population is vaccinated. The wider inoculation will help accelerate economic recovery as NCR accounts for 32.3 percent of the country’s gross domestic product.
The reopening of the country will significantly lead to a faster economic recovery that could address concerns about a possible downgrade in credit ratings.
Corporate earnings are recovering based on the latest second quarter earnings results of listed companies. And as impetus to investors, share prices of most listed firms remain cheap and are trading significantly below the 10-year historical average.
Resilient PSEi
First Metro Investments Corp. first vice president and head of research Cristina Ulang says in a recent mid-year economic and capital market briefing the company is generally positive and bullish about the vaccination program of the government and the recovery of the domestic economy, that will enable the PSEi to climb to between 7,400 and 7,800 by the end of the year.
Ulang says the local equities market has managed to become resilient. From its end 2019 close of 7,815, the main index plunged to as low as 4,623 in the first half of the year. But by the end of 2020, the PSEi went back to the 7,100-point level even as all economic indicators were on a free fall.
“This is a very resilient mark and this is giving us hope that we will be on an upward path in the second half of the year and specifically towards the fourth quarter,” Ulang said.
Foreign investors may take time to return, though, as investment outflows reached $2.5 billion in 2020 and $1.5 billion in the first half of 2021.
Ulang says foreign participation in the PSEi is currently on a nine-year low from cumulative 2014 to 2018. Despite this trend, there have been spurts in foreign buying, especially when the index dropped to the 6,500 level.
Ulang says election-related spending will be one of the main drivers for PSEi to reach new heights. The same spending will further boost the domestic economy.
“Historically there have been a lot government spending prior to the election. We see the bulk of spending happening in the second half of this year. We expect election year to produce robust GDP growth” Ulang said.
She noted that the average GDP growth stood at 6.7 percent in the last election year, significantly higher than 5.2 percent in a non-election year.
The market expectations will all depend on the vaccine rollout as it could dictate the reopening of the economy and earnings growth, which in turn should translate to higher GDP growth.
“But for an investor, this is the time to accumulate. For every market dip you should accumulate,” Ulang said.
Stock picks
Tan of COL Financial favors PLDT, Globe Telecom, Puregold, and Filinvest REIT among the defensive stocks, and for dividend play.
She also prefers Metropolitan Bank & Trust Co., BDO Unibank Inc., GT Capital Holdings Inc., D&L Industries Inc., Megaworld Corp., Metro Pacific Investments Corp., Monde Nissin Corp., and Aboitiz Power Corp. She says these companies will likely to benefit once the economy fully recovers from the pandemic.
Ulang, on the other hand, considers profitability, strong balance sheet yield, and valuations as importation criteria in buying stocks during the volatile conditions.
Among her preferred growth stocks are Century Pacific Food Inc., Wilcon Depot Inc., D&L, Monde Nissin, BDO, MBT, Bank of the Philippine Islands, Converge Information and Communications Technology Solutions Inc., and Ayala Land Inc.