Philippine Stock Market Research

January 8, 2020

2019 Recap 2020 Philippine Stock Market Outlook

After the great fall of 2018 from the all-time high of 9,078 on January 29, 2018, the PSEi was confined and traded within a wide and suitable range of around 7,500 to 8,400 in 2019.  Though ripe for a run-up in 2H19, the PSEi fell in 4Q19.

2019 marked the Philippine economic slowdown of 1H19, the acceleration of the US and China trade war, the Hong Kong protests and the threat of the revocation of the two water utility companies’ concession agreements.

Still, the PSEi was stable despite only surfacing above 8,000 at the start of the year and from June to August.  The PSEi also never fell below the 7,400 level in 2019.  This was partly due to the decline of the PH10YTN rate in 2019 which buoyed Philippine equities.

Quarterly net foreign buying peaked at PHP32.61 bn in 1Q19 and then dwindled to PHP28.09 bn in 2Q19 and then further to PHP6.39 bn in 3Q19.  It became net foreign selling of PHP14.50 bn in 4Q19.

PSEi 2019

The recommended portfolio of seven stocks with equal weighting for 2019 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.

Generating the highest share price appreciation were HOUSE (+90.4%), GSMI (+57%) and RLC (+31.2%).  The rest generated losses led by MPI (-27%), MEG (-16.5%), UBP (-12.5%) and MBT (-4.5%).  MPI was hit by the risk of subsidiary Maynilad Water, Inc. losing its concession agreement with the government in 2022.

Paying the highest cash dividend yield in the period were GSMI with 4.13%.  This was followed by UBP with 2.88%, RLC with 2.38% and MPI with 2.32%.  The 19% gain in 2019 is a mix of a 2.10% cash dividend yield and a 16.9% gain in the period.  The stocks portfolio’s return peaked at 46.1% in July 2019.

Dec 2018 Portfolio vs PSEi ASI 2019

Global stock markets were greeted at the start of 2020 with the US airstrike in Baghdad that killed Iran’s top general and second highest ranking leader.  This threatens the frail global economy with rising crude oil prices and effectively inflation.

Crude oil prices have been rising since the start of October at USD50.99 per barrel on winter demand.  It is now USD65 per barrel as crude oil prices have reacted upwards from the potential conflict between the two countries.  This is near the last high of USD66.60 per barrel last April 23, 2019.

The situation calls for funds to flow to safe-haven assets and minimizing the flow to emerging markets such as the Philippines.  Net foreign selling has continued from 2019, and the PSEi and ASI have been buoyed by local funds.  The situation also dampened accumulating market positives that may fuel a market recovery.

This includes the reversal of the GDP growth slowdown of 1H19 from 5.5% to 6.2% in 3Q19 and the decline in the inflation rate in the whole of 2019.  4Q19 GDP may be strong owing to the holiday season as well.  With the new turbulence, the PSEi may still be confined just around 8,000 in 1H20.

The strategy from 2019 remains.  High cash dividend yield value stocks at bargain prices are recommended as well as turnaround stocks in 2020.  This has been an investment marathon different from the fast-return cycles of 2010 to 2017.  The season of planting stretches for a bountiful harvest in the medium to long term.

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