Bulls Capped and Corralled in a Range
After the bulls were unleashed by falling interest rates from October to December 2014, they were capped and corralled in a range in December 2014. Overseas markets affected by falling crude oil prices mainly weakened the PSEi during the month. Yearend window-dressing duties pushed the PSEi to finish 2014 with an uptrend.
Interest rates have been increasing in the tail-end of 2014 signaling a reversal to the PSEi’s uptrend. The biggest adversities the PSEi will face in 2015 are the US Fed’s decision to hike interest rates, Chinese economic slowdown and stock markets negatively affected by falling crude oil prices. It is the direction of overseas markets that will weigh down on the PSEi rather than local developments.
Local developments are brighter due to the weak peso and low fuel prices. Along with expansion projects coming to completion, these will prop up the economy and the PSEi. The Philippines will still be under investors’ radars because of its high GDP growth. Quarterly earnings results are key this year since the PSEi needs a 30% 2015F EPS growth rate to ease its 21x PER back to rational levels. If the key listed companies deliver on earnings growth, then the party continues. Otherwise, global equities downturns will again reveal an expensive Philippine stock market that can cause heavy net foreign selling.
We’re still firm on our Take Profits recommendation due to the PSEi’s low margin of safety rate and high PER. The best advice now is to keep a good amount of liquidity for buying opportunities on market downturns. It’s 50-50 cash and stocks to start 2015. Use the cash on a depressed PSEi during the year.
The High-Growth Stocks Portfolio turned out the best at the end of 2014. Aside from slightly outperforming the PSEi, it generated a 2.36% cash dividend yield for the year.
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