Philippine Stock Market Research

July 2, 2018

 1H18 Recap 2H18 Philippine Stock Market Outlook

The PSEi was the worst performer among 18 developed and emerging stock markets in the world.  The PSEi incurred a 15.95% loss from the start of the year to the end of 1H18.  Russia, India, the US and France were the only countries in the group which generated gains in 1H18.  The average loss of the 18-country group was 4.59%.

PSEi 1H18

Despite its loss, the 2018 Opportunistic and Defensive Stocks Portfolio outperformed the PSEi and the ASI in 1H18.  The stocks portfolio originated from the Philippine Stocks’ 2018F Price to Earnings Growth and Cash Dividend Yields Part 2 Special Report on December 27, 2017.

They are composed of 15 stocks of equal weighting with opportunistic qualities as reflected by their growth upsides and defensive qualities as provided by their rich cash dividend yields.  Led by SMC’s 24% and FB’s 13% gains, five of the 15 stocks registered share price appreciation, and a 1.76% cash dividend yield was generated by the stocks portfolio as of June 2018.

2018 Stocks Portfolio in 1H18

The PSEi’s PER eased significantly in 1H18.  The PSEi bounced from low PER levels three times since 2013 to stage rallies that reached new highs.  However, this time is different.  The previous rallies were enticed and staged during the low interest rate environment.  Inflation, bond and note yields are now higher indicating further correction for the PSEi.

Ultimately, EPS growth will be the PSEi’s anchor, and, as of this writing, it needs at least a 13% average to halt the correction and establish a sturdy support level for the PSEi.  The 52-stock coverage notably generated a 9.2% EPS growth in 1Q18.  This lacks the minimum 13% requirement.  If EPS growth continues to be in single-digits, the PSEi is seen to have further correction going forward from the end of 1H18.

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