Stock boom
Indeed, the year 2015 is looking to be a very good year for the economy. The stock market, one of the more reliable barometers of economic health, has been mirroring the bullish outlook among local and foreign investors.
The Philippine Stock Exchange index (PSEi), a broad measure of local share price movements, pierced the 7,500 mark for the first time in intraday trading last week. The reasons for the bullishness are varied. But among those that stand out are the favorable impact of slumping oil prices on an import-dependent Philippine economy and the promise of the Aquino administration to roll out big-ticket infrastructure projects under its flagship public-private partnership (PPP) program.
The other reasons—forwarded by economists and stock analysts—include expectations that corporate profits would grow an average 13-16 percent this year, the resurgence of the manufacturing sector, the preelection spending (a given to precede and accompany the coming May 2016 elections) that traditionally boosts consumer demand, and the further easing of bottlenecks in the supply of goods caused by Manila’s truck ban last year.
The more optimistic foresee the local stock barometer climbing for the seventh straight year and posting new highs beyond the 8,000 level. First Metro Investment Corp., for instance, expects the PSEi to hit a range
between 8,300 and 8,500—a historical high.
With the country’s oil consumption estimated to be equivalent to 5 percent of gross domestic product and its reliance on crude imports remaining above 90 percent, the Philippines is one of the countries expected to benefit the most from the collapse in oil prices. As oil prices have fallen by half to about $50 a barrel, the country should enjoy lower electricity and transportation costs, the benefits of which should cascade to and be enjoyed by consumers and companies.
Many stockbrokerages have identified stocks that they believe will benefit from the rosy economic outlook for 2015. These are mostly in the consumer, gaming and power generation sectors, and conglomerates with infrastructure exposure as well as airline stocks. Specific companies cited include market-leading consumer stocks SM Prime Holdings, Robinsons Retail, Store Specialists Inc., Puregold, Max’s Group and Jollibee. Cebu Air is also tipped, as it can generate significant cost savings as half of its operating costs is spent on aviation fuel. A few mining companies, especially gold producers, are also forecast to benefit from a resurgence in metal prices that usually happen when oil prices slump.
This is not to say that the rosy outlook for 2015 is free of risks—like an extension of the global economic slowdown, the sluggish growth in other emerging markets, US interest rate increases as the American economy recovers, and the escalated geopolitical tensions in the Middle East. Locally, the risks would include natural disasters (typhoons visit and damage infrastructure and agricultural areas every year), an electricity shortage projected in the summer months, and potential setbacks in government spending alongside unexpected delays in PPP infrastructure projects. The US dollar is also seen to further strengthen against the peso as a result of an improving US economy.
Another risk is the high valuation of the local market, which means local stocks are very expensive compared to their peers abroad. For the sixth straight year, the local stock barometer rose more than 22 percent in 2014, rebounding from the 2013 bear market that was triggered by the US Federal Reserve’s tapering of its monetary stimulus. By the end of 2014, the Philippine stock market had a price-earnings (P/E) ratio of 19 times, reportedly the world’s second highest after India’s.
Amid the warnings that stock prices are very expensive, the nation would do well to look closer at the current stock market boom. Choosing which stock to buy and which to avoid would be difficult. But there is another
option—the equity-traded funds or ETFs. Metrobank’s ETF, for example, yielded a return of 26 percent in 2014. The ETF tracks the performance of the PSEi and thus provides investors with an exposure to a broad market involving 30 listed stocks that make up the price index.
All things considered, the stock market can be truly rewarding this year; but in case of an unexpected sharp reversal, it could pose bigger risks for those desiring to make a killing in stocks, using
borrowed funds.
