Stock market index forecast to reach 5,400 pts by yearend

MANILA, Philippines - Local stocks seem to be headed for choppy waters given the unraveling debt mess in Europe but the Aquino administration’s hardline efforts to pump-prime the economy will provide smooth sailing for investors that could take the market to the 5,400 range by yearend, leading online brokerage Citiseconline said.

Last year, the Philippine Stock Exchange index (PSEi) closed at 4,371.96, up by only four percent from the year earlier figure.

April Lee Tan, research head at Citiseconline, said while the near-term outlook for equities remains risky, she is optimistic on the medium and long-term outlook given a resilient domestic economy.

“Assuming that investors’ risk appetite improves, the PSEi could easily end the year at 5,400 as the market trades back to its historical average P/E of 16X,” Lee-Tan said.

Lee-Tan, however, said lingering uncertainties in overseas markets will hold back investors, putting bearish sentiment well out in front.

 “Although a lot of investors agree with our positive view of the Philippine economy and the stock market over the long term, most continue to stay on the sidelines given the lack of visibility of when and how the challenges facing the global economy will be resolved. Currently, there is still no green shoots to prove that the worst is over,” Lee-Tan said.

Lee-Tan, however, is confident that increased   government spending and the rollout of infrastructure projects should boost the economy and perk up the stock market.

“The government just needs to unlock these investment opportunities by either increasing spending itself or making these projects available to the private sector that is currently awash with cash. We are confident that we will start seeing this happen in 2012,” she said.

Lee-Tan said corporate earnings are expected to improve coming from a high base in 2010 which saw companies posting record profits, boosted by election-related spending.

She said any pullback is a chance to load up on shares of companies with strong fundamentals and good valuations.

Citiseconline has recommended nine stocks that are trading at attractive valuations and are expected to be major beneficiaries of rapid economic growth Metro Pacific Investments Corp., Ayala Corp., Metrobank, Alliance Global Group Inc., Ayala Land, Bank of the Philippine Islands, Robinsons Land Corp., Manila Water and Energy Development Corp.

Conglomerates Ayala Corp. and Metro Pacific are among the major bidders of projects under the government’s Public-Private Partnership program.

Metrobank and BPI are expected to be benefit from higher demand for loans while AGI should benefit from government’s focus on tourism-related projects to further spur the economy.

Higher economic growth should lead to stronger demand for housing, benefiting property companies such as ALI and RLC.

Lee-Tan said EDC is expected to deliver fast earnings growth this year since one of its power plants will make its first full year contribution in 2013.

“ Waiting for conditions to improve might be too late. As said by world-renowned investor Warren Buffet, invest when others are fearful,” Lee-Tan said.