PSEi Target: 8,150-8,300 points by the end of 2020



Philippine stocks could rally by around 45% by the end of the year, according to stock brokerage company First Metro Securities (FMS). The brokerage firm, in a stock research report released last week, wrote that the Philippine Stock Exchange index (PSEi) could reach 8,150 to 8,300 points by the end of 2020 — a 45% upside from the current 5,600 level of the stock index.

First Metro Securities, a brokerage subsidiary of the Metrobank Group, believes that “the worst in markets is likely behind us” and given post-risk adjustments in response to the COVID-19 pandemic, there appears to be a “significant upside” to the PSEi’s projected year-end level.

Here are highlights from their equity research report.

PSE stock market analysis

Not out of the woods yet but…

“The Philippine equities market has priced in a sharp economic downturn in both global and domestic markets. We are not out of the woods yet as COVID-19 cases have yet to peak globally.

Nonetheless, we take comfort that the worst in markets is now likely behind us. The unprecedented monetary and fiscal support from governments suggest that we have moved from Crisis to Response stage in the Crisis, Response, Improvement, and Complacency (CRIC) cycle. The rescue packages, while they will not prevent a sharp economic downturn nor flatten the curve in COVID-19 cases, they are a necessary part of the bottoming process and recovery. Furthermore, the decisive actions by the Philippine government should limit the damage and foster an early recovery.

PSE currently at its most attractive level

Despite the recent improvement in share prices (PSEi has gained 21.36% from its recent closing price low of 4,623.42 points), the equity risk premium (ERP) on the Philippine equities market continues to be at its most attractive level in history at 867 bps (+4.9 standard deviation) – 70 basis points (bps) higher than the peak of 797 bps during the 2008-2009 Global Financial Crisis (GFC).

Even after applying a subjective 25% decline in forward earnings, the risk-reward for Philippine equities still looks attractive at 652 bps. Therefore, we believe that current levels are good entry points to add equity risk for a 6-to-12-months horizon.

It will not be a straight line up; markets will remain unsettled in the near-term until COVID-19 is successfully contained. Nevertheless, we recommend taking advantage of such dips in the market because we cannot ascertain if the next one will lead to fresh lows or not.

Large hot money outflows but could soon decelerate

Last month, we saw outflows of US$239.3 million from Philippine equities, wiping out the prior four (4) months of net inflows of US$233.9 million. We highlight that the acceleration of outflows was largely a result of increasing uncertainty from COVID-19 and the length of time that containment measures would be in place.

Moving forward, we expect the pace of outflows to decelerate substantially this month.

First, foreign investors have been light on Philippine equities for some time now. We believe that the large outflow in March had unwound net inflows in the last four (4) months. Second, we highlight that foreign funds have been net sellers with outflows of US$496.7 million on a cumulative rolling 12 months basis. Lastly, the low interest rates is a catalyst for fund flows into emerging market equities and bonds.

With the light positioning of foreign investors, there is ample headroom to increase exposure in the Philippine equity market once COVID-19 is resolved or is at a manageable level.

Recommendation

Given the analysis above, we lower our year-end target for the PSEi from the initial estimate of 8,950-9,150 to 8,150-8,300 level.

This reflects the following risks that we have assumed: (i) 2020 & 2021 Forecasted Earnings per Share (EPS) of P381.50 & P479.90 — implying a 21.6% / 11.4% discount to current consensus estimates; and (ii) Equity Risk Premium (ERP) to level off at 471 basis points (bps), which is +0.5% Standard Deviation of its 5-year rolling average vs. the previous ERP target of 344 bps.

We prefer to accumulate cyclical index glamor names as they should lead the recovery. In order of preference, our top stock picks are:

  1. Universal Robina (URC)
  2. Robinsons Retail Holdings Inc. (RRHI)
  3. SM Investments Corp. (SM)
  4. Robinsons Land (RLC)
  5. SM Prime (SMPH)
  6. Ayala Land (ALI)
  7. Puregold Price Club (PGOLD)
  8. BDO Unibank (BDO)

Risk Analysis

There are, of course, risks to this call, including:

(i) the high degree of uncertainty surrounding the duration and severity of COVID-19;

(ii) if the economic recovery does not materialize or is slower than expected;

(iii) costly missteps stemming from the speed that rescue packages were approved;

(iv) unfavorable changes in consumption patterns in a post-COVID-19 world; and

(vi) strong US dollar.”

For additional analyses and trading recommendations on the Philippine stock market, check out these useful references from our partner PinoyInvestor:

Disclaimer: The report above is merely provided for information and should be construed solely as statements of opinion and not statements of fact. The information presented should not be seen as and does not constitute an offer or solicitation to buy any securities. Before making a decision to trade or to invest, the user should perform due diligence and practice sound decision-making. Invest only in products and instruments that you understand.

NOTE: This report is published in partnership with PinoyInvestor.com. PinoyInvestor is a Philippine-based stock reports subscription service that provides detailed analysis and recommendations on how to profitably trade the Philippine Stock Exchange (PSE). Sign up here to get your free PSE stock reports!

About the Author

PSEi support seen at 6,200 and 6,000 amid weaker Peso

In a not-so-surprising move, the U.S. Federal Reserve (Fed) yesterday raised interest rates by 75 basis points (bps) or 0.75% in a bid to tame rising inflation in the United States. This was the third consecutive 0.75% rate hike by the Fed, which brings the federal funds rate, the central bank’s benchmark interest rate, to ... Read more
blank

Official SWIFT Code of BDO, BPI, Metrobank, Philippine banks

When sending cash remittances or wire transfer to a bank account in the Philippines (such as BDO, BPI, Metrobank, Landbank, DBP, etc.), you’ll surely need the SWIFT Code of the bank. Look no further because you can find all the SWIFT Codes you need in this list! Make sure you’re using the right bank code ... Read more
blank

How to Waive your Credit Card Annual Fee (BDO, BPI, Metrobank, RCBC, Citibank, UnionBank)

Without a doubt, one of the most annoying fees that credit cardholders have to pay is the annual fee. Majority of cardholders are familiar with this fee and majority of us likely pay this grudgingly year after year after year. In the case of my credit card with BPI (Bank of the Philippine Islands), I’m ... Read more
blank

Why Filipinos do not become business owners or entrepreneurs

For a majority of Filipinos, entrepreneurship does not seem to be a typical, expected path. This is not surprising, considering that in school, students are primarily taught to become employees after graduation. Students train for years to become staff workers, reporting to a supervisor, and just waiting to receive their wages or salaries every month. ... Read more
blank

My experience investing in Mutual Funds in the Philippines

I started investing in mutual funds when I was 22 years old. As an Overseas Filipino Worker (OFW) then, I was fortunate to be able to save some money at that young age because of my work abroad. One time while I was on vacation in the Philippines, I saw a large billboard in EDSA ... Read more
blank

Income Tax Tables in the Philippines (2022)

The Philippines’ new tax reform bill, known as TRAIN or Tax Reform for Acceleration and Inclusion, was signed into law on December 19, 2017 and its implementation began on January 1, 2018. What are the new income tax rates under the TRAIN law? How will TRAIN affect income taxes of individuals and corporations? How is the ... Read more
blank

PSE Stocks Performance under each Philippine President (1987-2021)

Did you know that Philippine stocks were able to achieve an astounding growth of 800% in a span of 30 years? From 1987 until 2018, the Philippine Stock Exchange index (PSEi) rose from 1,000 points to a peak of 9,000 points — generating a return of 800% over 30 years. (The PSEi is an index ... Read more
blank

SSL 2022: Salary Increases for Teachers, Nurses, Gov’t Employees

Good news to all government employees! There’s a new round of salary increases beginning January 1, 2022! Millions of employees of the Philippine government — including public school teachers, nurses and staff of government hospitals, and workers in local and national government agencies, etc. — will be getting an automatic salary adjustment this 2022 under ... Read more
blank

PSE Trading Hours in 2022: What time open, when closed?

Before you take the plunge into stock trading and investing, make sure you understand what stocks are and how the Philippine Stock Exchange (PSE) operates. Unlike other investments that are relatively safe, stock trading is risky and loss of money is a possibility. So before you deep dive into the exciting world of stock trading, ... Read more

Price Floor and Price Ceiling of PSE Stocks

Trading bands in the PSE come in two forms: Price Ceiling, or the upper price limit, and Price Floor, or the lower price limit.

Leave a Comment