Col Financial trims yearend PSEi forecast

MANILA, Philippines - Leading online stockbroker COL Financial Group Inc. has slashed its yearend target for the Philippine Stock Exchange index (PSEi) following the stock market’s recent correction after a fiery start at the start of the year.

COL vice president and research head April Lynn Tan said the firm decided to reduce its end-2015 PSEi target to 7,950 from 8,300.

“The earnings outlook for listed companies has deteriorated as the 2015 estimated earnings per share growth for the PSEi has dropped to four percent from 15 percent previously, prompting us to reduce our end 2015 PSEi,” Tan said.

“External threats also remain such as the continuous sell-off of Thailand and Indonesian stock markets which are considered to be the Philippines’ regional peers and the upcoming Fed rate hike in the US,” she added.

Despite the downgrade, Tan said the market’s weakness is only temporary but noted the near term outlook for the stock market remains cautious.

“The Philippines currently still has one of the best fundamental long term stories globally. For example, the Philippines’ economic growth of more than six percent is expected to be faster than the average economic growth of both developed and developing economies globally in the next few years at less than 2.5 percent and 5.5 percent, respectively. Government spending, which was disappointing during the first quarter, is also showing signs of picking up,” Tan said.

“And while the Philippines’ exports are weak, the country is not too dependent on exports to drive economic growth. Finally, the Philippines has a strong current account position equivalent to 4.4 percent of GDP, thanks to the resilience of OFW remittances and the continuous growth of the BPO sector. This makes the country less vulnerable to sharp interest rate hikes or significant peso weakness,” she added.

Global liquidity conditions also remain favorable for stocks as an asset class as only the US is expected to raise interest rates soon, Tan noted.

COL Financial said the Philippine market is currently suffering from a correction that was initially brought about by disappointing first quarter corporate earnings and gross domestic product growth.

These were further aggravated by the exit of some foreign funds out of Thailand, Indonesia, and Philippine markets to North Asia, as well as a possible Greek debt default.

But despite the ongoing market weakness, Tan said there are no indications the local market is about to enter a bear market as inflation remains low at only 1.2 percent as of June this year. She added corporates remain underleveraged.

“Moreover, while the marke’ts outlook has deteriorated compared to earlier this year, there are still some sectors that enjoy a favorable near term outlook. These sectors include arilines, banks, properties, and power,” she said.