Philippine Stock Market Research

April 1, 2019

1Q19 Recap 2019 Philippine Stock Market Outlook

The decline of interest rates led by the PH10YTN rate prompted the PSEi to rise in early 1Q19.  This was spurred by the dovish US Federal Reserve which changed its tune from raising to just letting its US federal funds rate stay at current levels.

The PSEi corrected in February, but net foreign buying was strong buoying the PSEi to just below the 8,000 level.  Net foreign buying reached PHP32.61 bn in 1Q19 which is an improvement from the net foreign selling of PHP60.87 bn in 2018.  However, local buying was still weak and still has overhang from the PSEi’s drop in 2018.

PSEi 1Q19

The recommended portfolio of seven stocks with equal weighting from the Philippine Stocks Book as of December 10, 2018 outperformed the PSEi and ASI since their inception.  Five of the seven stocks are non-bank stocks with residual values, positive ROICs, blended multipliers less than 24x, PEG ratios less than 1x and PCF less than 16x.

The three stocks with residual values and one stock with high ROIC realized double-digit gains.  Meanwhile, two of the recommended seven stocks are banks with PBVs less than 1x and are consistent at the top of both profitability and financial condition ranking among the ten banks in the Philippine Stocks Book.  One of the banks paid the highest cash dividend yield of 2.9% in the portfolio.

Dec 2018 Portfolio vs PSEi ASI 1Q19

The outlook for the immediate 2Q19 is bullish.  Interest rates are softer and the senatorial elections in May is seen to bolster the economy led by the food and beverage sector.  There is still momentum also in EPS growth.  To note, the weighted average PSEi stock components growth notably improved from 5.2% in 1H18 to 6.8% in 9M18.

Going beyond 2Q19, the outlook seems dim due to a brewing economic slowdown.  By itself, it is not drastic, and long term Philippine economic growth is still intact.  However, coupled with the bearish rainy season of 3Q19 right after the brisk and busy summer season of 2Q19, the perceived slowdown may be amplified to dampen the PSEi.

Also by June, the trade discussions between the US and China may either have concluded or will be extended again.  This is one of the major factors why the PSEi and global stock markets are still held at bay from rising.  It is safe to assume that no deal can be made as China is unlikely to accept the terms the US is laying to secure IP rights and others.

It is recommended to take advantage of the potential rise of the PSEi in 2Q19.  There are still cash dividends to reap and a lot of value stocks to take position in right before 1Q19 earnings season in late April to May.


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