Jan 222015

THE LOCAL stock market index will likely chart new highs, breaching the 8,000 mark this year on ample liquidity and benign macroeconomic fundamentals especially with falling oil prices, stock experts said yesterday.

Sun Life of Canada sees the Philippine Stock Exchange index hitting at least 7,800 to as high as 8,000 this year, supported by expectations of higher earnings alongside a surge in liquidity from cash-awash investors, while funds flow out of Europe and Japan where central banks are pump-priming the economy.

COL Financial, on the other hand, upgraded its PSEi forecast for 2015 to 8,300, from 7,800, as the country’s leading online stock brokerage factored in a lower-than-expected interest rates.

“The resulting drop in interest rates makes stocks more attractive compared to other liquid investments despite the PSEi’s relatively expensive valuation from a historical perspective,” COL head of research April Lee-Tan said in a briefing Thursday.

Lee-Tan also cited the effect of the drop in oil prices on consumer spending, while the country would start to reap demographic dividends this year as more young people reach productive age.

At the same time, she said, there are expectations that reforms to address shortcomings in the country would endure beyond the current administration.

COL also expects corporate earnings to grow by 16 percent this year compared to only 6 percent last year.

Michael Gerard Enriquez, chief investment officer at Sun Life of Canada Philippines, said in a separate briefing Thursday that the Philippines was poised for a “rerating”—a change in valuations due to updates in earnings forecasts relative to prices.

While Philippine stocks had historically traded at around 14 to 15 times earnings, the local market now has proven its tradability at a higher price to earnings multiple of 18 to 20 times, Enriquez said.

Sun Life is optimistic on corporate earnings, he added, which may rise by 15 to 16 percent this year led by consumer, power and banking stocks.

Michael Manuel, managing director for Asia Investments at Sun Life, said there was room for equities to rise, especially as the US Federal Reserve’s tightening of interest rates had been pushed back.

At the same time, he said, the economic pump-priming in Europe and Japan may become a stabilizing force even though the United States is expected to take away money from the global financial system.

Manuel said the first semester of this year, or some time before the United States tightens rates, would be an easier episode for fund managers.

Lee-Tan said the market would likely move higher this year, bringing the market well on its way to meet COL’s goal of hitting 10,000 by 2020 at the latest.

Juanis Barredo, COL chief technical analyst, said a recent break over the PSEi’s two-year high of 7,413 restored the local market’s advancing trend and brightened prospects for 2015.

He said some healthy pullback could reach 7,320 to 7,300.

Based on fundamentals, Lee-Tan said COL’s top picks for 2015 included consumer plays D&L Industries, Concepcion Industrial Corp. and GT Capital Holdings; power plays Aboitiz Power, Energy Development Corp. and First Gen Corp.; value play Metropolitan Bank & Trust Co.; “consumer play proxy” SM Prime Holdings; oil play Cebu Air; and power and infrastructure play Ayala Corp.

“Risks for 2015 include the uneven appreciation in share prices, volatility and share placements,” Lee-Tan said.

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