Local stocks seen to move higher

MANILA, Philippines - The local stock market, which has been on fire this year, still has room to run higher as the Philippines is experiencing a major growth spurt and a wave of investor optimism on the back of solid macroeconomic fundamentals and robust fiscal spending, according to brokerage firms.

While the Philippines has emerged as one of the hottest emerging markets in the region, it has also become the most expensive, currently trading 18 times expected earnings for 2012.

But while the bears are waiting in the wings for its demise, the stock market’s upleg is expected to continue with the index seen closing the year at 5,600 to 5,800.

Veteran stock broker and former Philippine Stock Exchange chairman Wilson Sy said the stock market has strong legs to sustain its uptrend with brighter economic outlook supported by accelerated government spending, low interest rates, steady inflows from Filipinos working overseas and improving consumer spending.

COL Financial research head April Lee-Tan said the market’s strength is sustainable as the Philippines is still in the early stage of the economic growth cycle.

“We don’t expect foreign investors to leave as quickly as they came in given the attractive economic fundamentals of the Philippines relative to developed economies. The Philippines boasts of a young, underleveraged population, a government with strong finances, and large gross international reserves,” Tan said.

“We also don’t think there is a threat that the central bank would tighten its monetary policy anytime soon since there are no signs of overinvestment and excessive leverage yet,” Tan added.

The central bank cut rates thrice this year by a total of 75 basis points “as a pre-emptive move against the risks associated with the global (economic) slowdown.”   Some economists are expecting the BSP to cut rates by another 25 basis points by the end of the year, which could further drive growth in real estate or automotive sales.

Sy, who controls Wealth Securities and Phil-Equity Management, said stocks within the consumer space or those sectors benefiting from rising wealth in emerging markets, will see continued outperformance.

Tan said the government’s push to rein in infrastructure spending augurs well for the economy and the corporate sector as it would enhance productivity and encourage more investments from the private sector.

She cited the growing momentum of Public-Private Partnership projects offered by the Aquino administration.  From only P2 billion in 2011, the value of PPP projects that could be successfully rolled out could hit P109.7 billion in 2013, based on the list of projects available.

Among the projects that had been approved for public bidding recently are the P9.8 billion LRT-2 East Extension project, the P7.4billion new Panglao, Bohol Airport, the P5.6 billion Manila Orthopedic Center rehabilitation, and the P60 billion extension of the LRT-1.

Given a favorable business environment, Sy advised investors to stay in the equities market and to wait for any dips to get into stocks. Among his stock picks are SMIC, SM Prime, Robinsons Land and Puregold.

Tan, for her part, said COL Financial is sticking to its model portfolio, which comprises MetroBank, BDO, Ayala Corp., Ayala Land, EEI, Puregold, SM Prime, BPI, Robinsons Land and Manila Water.