Accord Capital sets 6,800-7,500 target for PSEi in 2013 means BUSINESS

MANILA - Amid concerns of expensive valuations, it's not yet too late to enter the stock market, as Philippine share prices are likely to sustain this year's strong performance in 2013, according to a brokerage.

Jun Calaycay of Accord Capital Equities Inc said the brokerage’s initial projection for the Philippine Stock Exchange index (PSEi) is a rise to between 6,800 and 7,000, with a fighting target of 7,500, nearly a 29 percent growth from the benchmark index's close of 5,823.94 last Friday.

With three trading days before the close of 2012, the PSEi is poised to register an annual return of 30 percent, significantly faster than its modest 4.1 percent growth last year, in record-breaking fashion. As of last Friday, the benchmark index has broken all-time high levels at least 37 times.

"The momentum of 2012 may be expected to carry over to 2013, with additional impetus from the mid-term polls scheduled in May.  The market will keep tabs on the country’s ratings, pregnant with anticipation of reaching investment grade, or at the very least hints of getting there," Calaycay said.

Late week, Standard & Poor's revised its credit outlook on the Philippines from stable to positive on the back of its favorable view of the Aquino administration's capacity to institute reforms, raising hopes that the country may finally garner investment grade status next year.

However, the biggest challenge for the economy will be sustaining its impressive run this year with the first quarter seen to provide the litmus test specifically if it can surpass the 6.3 percent posted in the first three months of 2012, Calaycay said.

In the third quarter, the Philippine economy surprisingly posted a 7.1 percent growth in gross domestic product, the fastest in Asean and the second-best in Asia next to China.

Despite the Philippines’ favorable economic fundamentals, offshore risks linger as Europe struggles to find a solution to a nearly half-decade old debt crisis and the United States tries to sustain its recovery.

"One of our major concerns is a possible reversal of the capital flows if and when early signs of better days ahead and an all-clear sign is raised in the troubled regions. Nevertheless, with rates still at historic lows, the Bangko Sentral ng Pilipinas has elbow room to make policy interventions to buffer its possible impact," Calaycay said, adding that this scenario makes a more aggressive roll-out of the projects under the government’s Public-Private Partnership (PPP) Program “an imperative.”

On a narrower scale, the market will be on the lookout for possible major movements in the financial sector and the clearing up of the policy environment over the mining industry, the analyst said.

Seen to benefit from the election-related spending through the first semester are media, telecoms, consumer goods, retail and transportation stocks.

Calaycay said the market’s performance in a mid-term election year, however lends no clear guidance with the PSEi dropping 22 percent in 2001, but gaining 21.5 percent in 2007. The Presidential election years are more dependable, rising 27 percent and 38 percent in 2004 and 2010, respectively. 

Amid elevated valuations, Calaycay said the steady rise in earnings provides justification to the bull run continuing through next year.

Assuming this year’s price-to-earnings (PE) ratio holds at 18 times, the “new normal” can be defined at PEs of between14 and 16 times.

The analyst noted that surging interest in the Philippines is reflected in this year’s trading numbers with aggregate net value turnover increasing from the previous year’s P1.42 trillion to P1.76 trillion as of last week, equivalent to a daily average of nearly P6.0 billion from P4.8 billion last year. 

Even foreigners recognized the potential with this year’s net positive flow doubling last year’s total at P108.7 billion from P57.5 billion, respectively.