The Second Quarter 2014 Philippine Stock Market Report

Going South From the Range

After rallying in 1Q14, the PSEi met the ‘roadblock” we noted in the last quarterly report and stayed in a range of 6,600 to 6,900 in 2Q14. This is actually Euphoric High levels in the PSEi Bands. Despite the slow-down of the country’s GDP growth rate to below the critical 6% mark in 1Q14 to 5.7%, the PSEi recovered from its drop to stay afloat within the range. The Philippine stock market remained attractive due to cash dividend season and the generally strong performance of the listed companies driven by the weak peso in the period. The Philippines also still has one of the best GDP growth rates in the world along with China and Malaysia.

PSEi 2Q14

The problem now is that the ceiling is too low. The PSEi can only rally around 200 points or 3% up to a little over 7,000. Even at this point, foreign buying has resumed. This is understandable because of the upcoming 2Q14 earnings results which commences late this month. The PSEi already went up by 15% in 1H14. It is at 21.65x as of now. Our broader 59-stock coverage already has a 19x PER as of last Friday indicating a general overheating of share price levels. Corporate earnings are catching up slowly and not yet enough to ease the PSEi PER. A good move is to “Sell on Rally” especially on overvalued stocks one already has. But the definite move is to currently minimize buying and concentrate specifically on highly undervalued stocks.

The PSEi ran up 15% already anyway in 1H14. It is best to preserve capital and gains at the Euphoric High. Speaking of gains, in a June 30, 2014 post, we listed the performance of the stock portfolios we made for our clients in October 2013 and January 2014. The best of the four is below, the High-Dividend Stocks Portfolio. We see the PSEi correcting in 3Q14. We think this commences during the next earnings season when the PSEi is more than 22x PER.  That was the PSEi PER before the May meltdown in 2013.

High Div Fund 1H14

Disclaimer

The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.