Online stockbroker Colfinancial.com said there is a strong fundamental support for the Philippine Stock Exchange index (PSEi) to stay above 7,000 despite the consolidation it is currently undergoing.
Recent trading sessions saw the PSEi finally breaching the 7,000- level after several attempts this year.
Colfinancial.com said despite the “challenges still facing the economy,” investors can look at the current declining daily new coronavirus disease 2019 (COVID-19) cases in the Philippines and other Asean countries.
There is also the “diminishing likelihood of hard lockdowns in the National Capital Region (NCR) due to the high vaccination rate in the region,” and the growing possibility the experimental anti-flu virus drug that is seen as a cure for COVID-19, Molnupiravir, will soon be available in the market.
Colfinancial.com said the falling number of daily new cases in Asean including the Philippines “should lead to reopening, helping boost sentiment for stocks in the region, which is good for all Asean markets.”
Although only 18.7 percent of the Philippines’ population is fully -vaccinated, the percentage is much higher at 50.7 percent in the NCR, which is good for businesses given that the region “accounts for around a third of all COVID-19 infections in the country and 32.3 percent of GDP,” Colfinancial.com said.
It said since the economy loses at least P105 billion each week it is under a strict lockdown, and unemployment rate increases every time the government imposes an enhanced community quarantine, a steady reopening of the economy will be beneficial to the earnings outlook of businesses and the stock market as a result.
The stock market can also benefit from the “rotation of foreign funds out of China into Asean due to heightened regulatory risks,” and the dovish taper by the US Fed, Colfinancial.com said.
Colfinancial.com also said 2022 corporate earnings are seen to post a “double digit” growth.
“After increasing by 44 percent this year, we forecast the PSEI’s earnings per share to increase by another 22 percent next year as the economy reopens and continues to recover from the pandemic. Based on Bloomberg consensus estimate, GDP is forecast to increase by a much faster pace of 6.5 percent in 2022 from 4.5 percent in 2021,” it said.
“Given the double-digit earnings growth next year, the PSEi would be trading at only 16.1X P/E (price-to- earnings) even at the 7,000 level. This is also below its 10-year historical average P/E of 18.2X,” it added.
Colfinancial.com however cautioned investors to “avoid buying stocks of companies that are very sensitive to rising oil and coal costs.”
“Although we have a bullish view on the stock market, we recognize that rising commodity prices and the expected increase in inflation are concerning. Note that prices of fossil fuels such as oil and coal have gone up sharply during the past few weeks. In fact, prices of oil and coal are now up by 57.2 percent and 185.7 percent for the year-to- date period.
Numerous factors are causing the increase including the global economic recovery, weather related factors, and the lack of investments causing lower supplies,” it said.
“Higher prices of oil and coal will lead to higher costs for many businesses, pushing up inflation as companies raise prices to pass on higher costs. This might also force the Bangko Sentral ng Pilipinas to raise interest rates assuming that inflation expectations pick up,” it added.