Philippine Stock Market Research

July 1, 2019

1H19 Recap 2H19 Philippine Stock Market Outlook

The decline of interest rates led by the PH10YTN rate buoyed the PSEi, but US and China trade war fears offset this and dampened the PSEi in 1H19.  This confined the index to trade within a range of around 7,500 to 8,200 in 1H19.   The latter part of 1H19, however, saw the PSEi testing its main resistance of 8,000.

The PSEi declined right before the May elections on risk aversion but recovered after it.  Net foreign buying dominated 1Q19 with local buying taking over the reins in 2Q19.  Still, net foreign buying reached PHP28.09 bn at the end of 1H19.  This is down, however, from PHP32.61 bn at the end of 1Q19.

PSEi 1H19

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

GSMI and HOUSE more than doubled since the inception of the stocks portfolio, while MEG and RLC rose more than 20%.  MPI was flat.  Banks MBT and UBP incurred losses; however, UBP paid the biggest cash dividend yield of 2.88% among the stocks in the portfolio.  It was followed by RLC with 2.38%.

Dec 2018 Portfolio vs PSEi ASI 1H19

2019 so far remains as a season of buying into value stocks for favorable medium to long term growth.  It is only a matter of time before the PSEi surpasses the 8,000 mark.  Again, this is driven by low rates and an increasing weighted average EPS growth rate of the PSEi.  It accelerated from 5.2% in 1H18 to 15.5% in 1Q19.

3Q19 is basically a weak quarter due to the rainy season; however, end-July to early August will be 2Q19 earnings season which will give indications to stocks’ financial performances and updates.  Election-related spending may have also propped up GDP in 2Q19 to bring its growth back to or above 6% from 5.6% in 1Q19.

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