Brighter prospects for the Philippine economy will support the rise of stocks in 2014, despite the volatility caused by the US Federal Reserve’s monetary stimulus tapering and other global challenges.
Analysts said on the positive side, strong consumer spending, driven by remittances from Filipino workers overseas, business process outsourcing receipts and new investments in the manufacturing sector, would support the income growth of companies this year.
Analysts said the economy would also benefit from improving US and European economies over the medium- to long-term period, as the two markets remain the biggest destinations of Philippine exports.
Government spending, particularly for the rehabilitation of provinces that were severely damaged by typhoon Yolanda in November 2013, was also seen to boost the domestic economy.
However, domestic factors such as disappointing corporate earnings and the failure of government to execute the much-anticipated public-private participation projects could weigh down on stocks.
Delays in post-Yolanda reconstruction, spike in inflation rate and failure of investors to appreciate the strong Philippine fundamentals are also among the reasons that investors could use as excuse to stay on the sidelines.
After gaining just 1 percent to close 2013 at 5,889.83 on Dec. 27, the Philippine Stock Exchange index, the 30-company benchmark, is expected to sustain its upward trajectory this year.
First Metro Investments Corp., the investment banking unit of the Metrobank group, sees the index trading between 6,300 and 6,500 points in the first half of the year, with power and utilities, properties, consumer, infrastructure and manufacturing-related firms providing the boost.
BDO Private Bank senior vice president for wealth advisory and trust group Rafael Ayuste Jr. said a recent news briefing the PSEi hitting near the 8,000-point level was still a possibility, given the rosy outlook on the domestic economy.
Ayuste said the PSEi was expected to rise above the 7,000 level next year, on positive prospects. The country’s gross domestic product grew 7.2 percent in 2013, despite the series of natural disasters that hit the country in the latter part of the year. GDP this year is expected to expand between 6 percent and 7 percent.
COL Financial research head April Lee-Tan said the Bangko Sentral’s move limiting access to special deposit accounts to trust entities should release enough liquidity in the system, which could offset possible foreign fund outflows. Tan said for 2014, she expected the PSEi to reach 7,400 level.
Overseas, investors are likely to watch the volatility in emerging markets caused by the massive outflow of foreign funds back to developed countries like the United States and European economies.
Foreign funds, which flowed to emerging markets such as the Philippines and boosted the equities markets due to the fiscal stimulus introduced by the US over the past several years, are now moving back to US and EU, amid signs of recovery in the advanced economies.
The outflow of foreign funds is expected to force emerging markets to raise interest rates, which could make capital more expensive for companies that are on expansion mode, according to analysts.
The US Federal Reserve’s decision to accelerate the reduction in bond-buying activities could also hasten the movement of foreign capital back to developed countries.
The Fed announced it would slash its monthly bond purchases by another $10 billion to $65 billion in February 2014, an affirmation the US economy is gaining traction.
For this year, analysts said consumer-related stocks such as Universal Robina Corp., Puregold Price Club Inc., Emperador Distillers Inc. and D&L Industries would be among the top favorites because they were likely to benefit from increased purchasing power of consumers.
Likewise, tourism and casino-related stocks such as Bloomberry Resorts Corp., Belle Corp. and Melco Crown (Philippines) Resort Corp., are also getting strong interest from investors as the government aims to attract more foreign tourists into the country.
Companies engaged in infrastructure projects such as Metro Pacific Investments Corp. and Ayala Corp. also get the attention of investors, as they bid for government projects.
While the equities market remains volatile, the Philippine Stock Exchange plans to introduce more investment products to the market and at the same time improve good governance to attract more investors.
As an initial step, PSE aims to develop new products to make the exchange world-class. This is being done by expanding technical knowledge and adopting best practices from top global exchange.