Philippine Stock Market Research

January 5, 2018

The 2018 Philippine Stock Market Outlook

The PSEi is starting the year 2018 with a bubble inflated by euphoria from the Tax Reform for Accelerated Inclusion (TRAIN) and the ever-rising DJIA and S&P 500 at the other side of the world.  This is unlike the start of 2017 when the PSEi PER was 17.37x and the PH10YTN rate was 4.63%.  This was good soil to grow a stocks portfolio at a 1.13% margin of safety, and the PSEi did grow by 27.15% in 2017.  This was the fourth best behind Argentina, Hong Kong and India among 18 countries we cover globally.

PSEi 4Q17

Looking back through the years, the PSEi has always started strong in January since 2012.  A slight exception was in 2016 when the PSEi faltered in January but staged a rally late that month up to July after the lion, Rodrigo Duterte, became president of the Republic of the Philippines.

The Philippine stock market has set its sight towards the 9,000 level this year.  The pied pipers have been rallying up the herd to advance towards that target since late December 2017.  Though 9,021 is the peak in one of our PSEi direction tools, we don’t see sustainability in that target this year.  It is like the previous peaks of 8,127 on April 10, 2015 and 8,025 on July 22, 2016.  The main reason is that earnings have not caught up yet to justify and cement the PSEi at those levels.

The current PSEi and even the ASI are heavily priced-in with TRAIN benefits, the fruits from the listed companies’ expansion projects and the success of listed companies’ net income targets spanning until 2020.  The current PSEi PER of 22.74x is actually a potential fourth peak going back to January 2013.  At a PSEi of 9,021, the corresponding PER is 23.47x, and this is what the market is targeting.

Please take note that when we say the market or the stock market, it is the market fueled by emotions.  Currently, that emotion is euphoria, and we have seen recommendations such as to buy retail stocks because they are the direct beneficiaries of the TRAIN.  The problem is that the retail stock recommendations are trading at huge PER multiples.  On a side note, there is only one retail-related stock that is a Buy to us, and it is not even a Buy recommendation or a coverage from the pied pipers because it is not a PSEi stock and does not help in pushing the PSEi towards 9,000.

It is in times like this that we are reminded to be responsible and accountable for our recommendations.  That is why we regularly show the performance of our stock portfolio recommendations not just as a measure of our performance but as a degree for accountability.  We are after gains at minimal risks.

While the PSEi and ASI parade on, bond and note yields have been creeping up to levels not seen since 2012.  These have cemented themselves in their new highs since November when we issued alerts to our fold.

Fueling the advance to 9,000 will be the favorable 2017 results to be announced late February to March and 1H18 cash dividend season.  Funds have already positioned for this since December 2017.  The 51-stock coverage pays an annual cash dividend yield of above 2% with the best ranging from above 4% and almost 7%.  The coverage also has average revenue and net income growth of 13% and 10%, respectively that is expected for 2017.  The market is splurging, while rational investors are taking profits and just positioning for 1H18 cash dividend season before the bubble bursts.



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