“Inflation has also started to normalize after reaching its peak in August last year, with the Bangko Sentral ng Pilipinas (BSP) targeting inflation to be within the 2 to 4 percent range for this year…This, together with the gradual resolution of global supply chain issues brought about by the reopening of more economies, should help consumer companies grow their topline while sustaining or even improving gross margins”
For investment bank First Metro Investments Corp. (FMIC), the Philippine Stock Exchange index (PSEi) is likely to hit the 8,100- level within the year amid a recovery from the debilitating effects of the coronavirus disease 2019 (COVID-19).
Patricio Dumlao, FMIC president, said the PSEi’s expected performance is anchored on the assumption the economy will 6 to 7 percent this year as it finds its firm footing anew amid the pandemic. Domestic consumption both from the government and the private sector continues to improve, driving the growth.
“Our external position remains robust, supported by manageable external debt, steady US dollar inflows from remittances and BPOs (business process outsourcing), and high gross international reserves,” said Dumlao, adding these are also complemented by easing inflation, expected election spending and accelerated government expenditure on infrastructure projects.
Cristina Ulang, FMCI head of research, said this could lead to corporate earnings posting growth of 35 percent this year, up from last year’s 28 percent, giving listed companies a price-to-earnings (P/E) ratio valuation of 16.9x.
Overseas Filipino remittances are expected to grow 4 percent this year.
Inflation, while seen to pick up due to higher crude oil and food prices, will eventually slow down and average between 3.5 to 3.7 percent.
Consumer stocks shine
Online stockbroker Colfinancial.com shares the view of FMIC saying 2022 will be a year of consumer stocks with the continued reopening of the economy and the expected election-induced spending spree.
“The increased mobility, coupled with the 2022 presidential election should help spur consumption this year. Note that household consumption historically increased during election years,” Colfinancial.com said.
The first online stockbrokerage firm in the country noted that over the past three election years, household consumption grew by an average of 3.8 percent in real terms.
“This is much faster compared to the 2.6 percent growth recorded during non- election years,” it said.
“Inflation has also started to normalize after reaching its peak in August last year, with the Bangko Sentral ng Pilipinas (BSP) targeting inflation to be within the 2 to 4 percent range for this year,” Colfinancial.com said.
“This, together with the gradual resolution of global supply chain issues brought about by the reopening of more economies, should help consumer companies grow their topline while sustaining or even improving gross margins,” it added.
The property sector is expected to continue its recovery this year, as people get to move more, and more people are going back to office.
Colfinancial.com said the office and residential segments of the property sector will continue to improve driven by BPOs.
“Meanwhile, the further relaxation of quarantine restrictions and uninterrupted construction (at a minimum capacity of 50 percent) should boost residential revenues closer to pre-pandemic levels.
Despite the end of the Fed’s quantitative easing, interest rates are expected to remain low and conducive for growth, which will help support affordable financing for homes,” it said.
Banks’ intermediation business is expected to improve this year with loan growth slowly recovering.
“We expect net interest margin to increase on the back of higher yields amid steady funding cost. The improvement in asset yields will come from a.) banks gradually rebuilding their bond portfolios amidst higher bond rates; and b.) as loan growth continues to recover which would improve asset mix. The possibility of rates hikes from the central bank will also improve lending rates,” Colfinancial.com said.
“In our view, banks’ asset quality will remain healthy despite the recent tightening of quarantine restrictions. Note that despite the various lockdowns last year, the sector’s NPL (non-performing loan) ratio slowly improved starting June 2021. Meanwhile, we estimate that provisions will further decline this year on the back of the banks’ preemptive provisioning as well as improving asset quality outlook,” it added.
On the defensive
Stockbroker Abacus Securities Corp., however, remains on the defensive side noting that if foreign funds’ movement was any indication, the market should expect fund flows to heat up as the election draws near.
“Although there is a clear frontrunner at this point according to the latest Pulse Asia poll, this may actually be a deterrent for foreign investors. They may see the frontrunner in the same mold as the incumbent during whose term the PSEi saw record hot money outflows,” it said in an investors’ note.
Nicky Franco, Abacus head of research, in a recent talk with Abacus clients said based on how governments are perceived to be authoritarian, these countries enjoy a lower P/E valuation compared to peers.
In particular, Franco noted that among emerging markets, China’s market enjoys a 7.7x PE while the emerging market as a whole is at 12.9x.
Franco, however, said the elections will still be a “slightly net positive” element for the market this year “due to election related private consumption.”
“As we all know, money goes during the elections, and they should, they should boost consumption over the next few months or next to next two quarters,” he said.
The PSEi closed 2021 at 7,122.63 points, slightly down from its end-2020 close of 7139.71.
Average market daily turnover last year was at P9.00 billion, up by 22.5 percent from 2020’s P7.35 billion average.
Foreign investors were net sellers by P2.32 billion, same as the prior year but has narrowed the volume compared to 2020’s P128.57 billion net foreign selling.
The PSE said foreign funds contributed 36.1 percent of the market’s trading value turnover.
