The local stock market, which fell below the 8,000-point mark in September, is raring to bounce back in the fourth quarter on the back of strong earnings outlook, according to analysts.
After declining to as low as 7,700 this quarter amid the negative developments overseas such as the lingering concerns over the US-China trade war, the 30-company Philippine Stock Exchange index slowly climbed toward the 8,000-point level this month.
Given the recent market drop, some investors were worried that the year-end target of 8,400 to 8,600 level would not be achieved.
Despite the recent trend, online brokerage COL Financial Group Inc. research head and chief equity strategist April Lynn Lee-Tan said the company was keeping the 8,600-point year-end target.
COL Financial even raised its growth target for earnings of PSEi companies to 13 percent from an initial goal of just 11 percent at the start of the year as banks and property firms were expected to sustain their strong growth in the second half.
“The strong sectors for this year would be property because of residential and leasing and banks, which are expected to post a strong recovery this year on higher trading gains as well as healthy loan growth,” Tan said.
The road to the 8,600 level, however, is bumpy as the global economic outlook remains sluggish.
Tan said the global economy is showing signs of slowing down because of policy uncertainties brought about by the US-China trade war and the United Kingdom’s exit from the European Union.
“Although central banks are loosening their monetary policies, it remains uncertain if they will succeed in addressing economic growth concerns,” Tan said.
She said that in the domestic front, the Philippines would continue to suffer from an above-average budget deficit and a current account deficit.
Tan, however, expects the bull market to emerge soon as the factors that hurt the market’s performance last year such as high inflation and interest rates, peso depreciation and foreign fund outflows all reversed in favor of the Philippines.
COL Financial’s top stock picks for this year include Ayala Land Inc., Megaworld Corp. and Filinvest Land for the property sector and Metrobank and Security Bank for the banking sector.
Tan said she also likes D&L Industries Inc, Store Specialists Inc., Max’s Group Inc. and Century Pacific Foods Inc. for the consumer sector and Ayala Corp for the conglomerate sector.
Meanwhile, First Metro Investments Corp. expects the PSEi to end the year within the 8,400 to 8,600 range as investor sentiments will be boosted by lower interest rates and the expected earnings growth for listed firms.
FMIC vice president and head of research Ma. Cristina Ulang said in a recent mid-year economic briefing that the compounded annual growth rate of earnings of listed companies was expected to increase.
“Our confidence arises from the fact that the consensus earnings estimate moving forward is upward and we’ve seen CAGR [compounded annual growth rate] earnings-wise,” Ulang said.
Ulang said earnings CAGR of companies averaged 5.9 percent from 2010 to 2015, before rising to 8.1 percent from 2016 to 2018.
Ulang expects this figure to even increase to 10.6 percent from 2019 to 2021.
FMIC is also counting on the monetary easing policies promised by the Bangko Sentral ng Pilipinas to boost the market.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno promised another rate cut before the end of the year. He also committed to cut down the reserve requirement ratio to a single-digit during his term.
“We are seeing the PSEi react to the RRR cut and the promise of policy rate cut of more in the second half of this year,” Ulang said.
FMIC’s stock picks for the period include BDO Unibank Inc. and Metropolitan Bank & Trust Co. (Metrobank) for banks; Universal Robina Corp., San Miguel Food and Beverage Inc. and Wilcon Depot Inc. for consumer firms; and Ayala Land Inc., Megaworld Corp. and Robinsons Land Corp. for property.
It also likes Megawide Construction Corp. and Eagle Cement Corp. for infrastructure and picked Ayala Corp., JG Summit Holdings Inc., Metro Pacific Investments Corp. and GT Capital Holdings, Inc. for conglomerates. In the power sector, it prefers Aboitiz Power Corp. and Manila Electric Co.
The PSEi gained 6.88 percent in the first eight months of the year to close at 7,979.66 on Aug. 30 while the broader all-share index went up 6.46 percent to 4,809.48.
Foreign investors remained net buyers in the eight-month period at P11.6 billion, as total foreign buying reached P684.33 billion while foreign selling amounted to P672.73 billion.