Stock broker BDO Securities Corp. said the benchmark Philippine Stock Exchange index could round the year at 7,500 points as market sentiment improves despite lingering fears evoked by worrisome overseas events.
Abigail Chiw, BDO Securities head of research, said the outlook takes into consideration an earnings growth of 13 percent and investors giving the PSEi a valuation multiple of 15 times price-to-earnings from 13 times at the moment.
Chiw said a nagging concern over inflation, rising interest rates and lethargic global growth stymied the stock market’s rise in the early part of the year, with the main index dropping to the prevailing level of 6,600 points from a high of 7,100 points in January.
The PSEi, which provides a snapshot of the mood of the securities market, gained 47.61 points on Tuesday to close at 6,672.69 points.
“This is really because of the shock we had in January and February when inflation came out higher than 8 percent. That affected the market because they think that interest rates will continue to be higher for a longer period. So this will affect, of course, consumer demand and maybe also business sentiment,” Chiw said.
According to her, investors risk aversion has led to daily market turnover dropping to around P3 billion to P5 billion on an average daily basis compared to P7 billion when investors were optimistic about market prospects.
“And also because of higher interest rates, investors right now are putting more of their money in fixed income or bond securities because this type of security is already giving them very good returns of 6 percent or 7 percent, whereas the earnings yield for the PSEi is (about the same). Not much difference (there) but the perception on equities is riskier. So, they go with the safer bond instrument or government securities,” Chiw explained.
However, she also said earnings yield should soon start trending higher and the benchmark rate trending lower.
“We think we are already trading at very attractive valuations for stocks. We are now 13 times forward P/E versus the 17 times historical average. So we think for long term investors that this is already a good time to buy if you believe in the potential of the Philippine market,” Chiw said.
According to her, the catalysts for the Philippine market is when inflation continues to come down, and interest rates start to stabilize, hopefully by the second half of this year.
We think these trends would improve consumer and business sentiment, and again, will revive interest in equities,” Chiw said.
