Philippine Stock Market Research

Is 8,000 Possible, Doable, Sustainable?

February 22, 2013

As the PSEi nears 8,000, many ask if this mark is just a one-off target or the PSEi’s new level in 2015. 8,000 first appeared in our radar in 2013. Prior to that, we called a Buy on the market back in September 2012. We were bullish as interest rates headed south, deep south. Being inversely-related, the PSEi rallied until 2Q13. Those were the days when the phrase “QE Forever” came about. That was also when we first saw that 8,000 was a possibility as interest rates continued to slide. We even mentioned 8,000 and 9,000 in our article, “Climbing and Value-Investing”. The PSEi reached a high then of 7,404 till it collapsed on taper tantrum. The US Federal Reserve became hawkish, frightened the market and ended the party drummed up by falling interest rates. Since then, we added another tool in our arsenal to see the direction of the market. We implemented it back in 2Q14. Sure as interest rates fall, the stock market goes up, and we called market Buys well with our first tool. However, levels to which the PSEi goes to are firmly supported by economic and corporate earnings growth. Back in 2013, these two could not support a PSEi of 8,000 yet. But now it can with the economy growing by 6.1% in 2014. Economic and corporate earnings performance combined is a superior gauge than interest rate movements in determining the PSEi’s direction. As the economy grows in 2015, the PSEi can set foot slowly and firmly in the 8,000 level. On top of the weak peso, low fuel prices will be driving the economy. An interest rate hike coming from the US can dampen this. If it happens, the PSEi will retreat to support levels that can also be determined based on economic and corporate earnings performance. However, 8,000 is still the destination whether in a slowdown or in better conditions. Retreats when they appear will be welcome buying opportunities especially now that the PSEi is in 22x PER.

 

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