The Second Quarter 2015 Philippine Stock Market Report

Hibernating Bears Wake Up in 2Q15

The PSEi in 2Q15 went on a reverse course from 1Q15. From April, there were already bearish signs such as the economic slowdown and the deterioration of margin of safety reported in the last article “Sell In May and Go Away”. The latter was the last point of the article, and the PSEi went downhill after that.

PSEi 2Q15

Despite the fall from the all-time high, the PSEi is still overvalued at above 20x PER. Our valuation of the PSEi is 17.71x PER so downside is heavy. On the other hand, the Philippine All Shares Index (ASI) is almost 17.50x PER. It is below our valuation of the ASI at 17.51x PER. This shows the big discrepancy or heavy inequality between the blue chips and the second and third-liner stocks in the Philippine stock market.

The blue chips are overbought, and all funds are concentrated in them despite their high PERs and low cash dividend yields at current prices. The rest of the stocks in the Philippine stock market are generally at a bargain as the ASI trades below 17.51x PER. Even at a bargain, a PSEi correction will still bring down second and third-liner stocks as the blue chips dominate the Philippine stock market. It is up to the investor to scour for value when this occurs. The margin of safety remains low at the start of 3Q15.

Global markets are still pounded by the Greek debt crisis and the highly volatile CSI300. Sluggishness and downward bias are seen to persist this quarter, and the cash component of the 50-50 cash and stocks asset mix recommended in the start of 2015 may be utilized in 2H15. This can significantly improve one’s investment portfolio when bargains abound in the “ber” months.  

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.