DESPITE their being cautious at the start of 2015, many analysts and traders were still surprised at how the year turned out—seeing the equities market entering the bear territory, a technical term underscoring the fact that prices fell by 20 percent.
For this year, many of the analysts, though still mainly positive in their outlook, are not taking any chances as they try to manage investor expectations.
“Regardless of the 20-percent fall definition, we argue that we are in a bear market, a period of sustained declines in share prices. We expect this bear market to test the patience of most investors,” said Jose Mari Lacson, head of research at Campos Lanuza and Co. Inc.
Last year the benchmark Philippine Stock Exchange index (PSEi) fell year-on-year by almost 4 percent to end- 2015, at 6,952.08 points, from end-2014 at 7,230.57 points. It fell by 14 percent for the year, from its top of 8,127.48. It also saw foreign investors become net sellers at P59.71 billion, a reversal of P55.71-billion net buy in 2014.
The PSEi also snapped its six straight years of annual gains last year.
“This bear market will have the legs to keep itself moving over the next six months and possibly for the whole of 2016. It will take time for prices to correct to levels that will not reflect the fundamentals under tighter global liquidity and slower economic growth,” Lacson said.
Meanwhile, Justino Calaycay Jr., trader at Philstocks Financial Inc., said since this year is an election year, it could be a boon for the equities market.
“As history has shown, each and every presidential election year in the post-Marcos era has translated to positive annual results in the PSEi. It boils down to being able to identify which sectors—and which stocks in each sector—have a high correlation rating with the market in order to achieve relative safety and maximize potential upside,” Calaycay said.
He said, despite the outcome of the four previous presidential elections, starting from the time President Fidel V. Ramos won in 1992, the market had always returned positive. It averaged 20 percent in gains during the four elections, and the last two gained a high of 32 percent.
“This ‘angle’ gives investors hope,” Calaycay said.
“We believe that a return of between 7 percent and 12 percent is a reasonable expectation over the short term, with a longer-run potential of 15 percent to 20 percent.”
Using Calaycay’s figures, this puts an initial target for the PSEi at between 7,430 points and 7,780 points on the upside. Within the year, however, the main index could trade over a wider range from 6,400 and 8,300 mark, he said
Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said the bank is also cautiously
optimistic on its outlook and advised investors to structure their portfolio against a worst-case scenario, otherwise known as the “Black Swan” event.
Investors should diversify their portfolio on a mix of asset classes and in currencies, Ravelas said.
He said investments in fixed-income securities could be a mix of cash instruments for liquidity needs, investment-grade bonds, both sovereign and corporates, and a few noninvestment-grade fixed income securities to enhance yield of the portfolio.
He said a mix of short- to medium-term maturity of fixed-income investments provide opportunities for investors to reinvest maturing bond investments in a gradually rising interest-rate environment, or lock in their investment if rates stay persistently low in the next three to five years.
“Furthermore, an investor can add stocks in his/her portfolio to protect it from unexpected rise in inflation,” he said. “Several studies show that stocks, while more volatile than bonds, provide higher returns than bonds over the long-run. Therefore, having an exposure of stocks, whether direct securities or combination of mutual funds, ranging from 10 percent to 20 percent, puts the overall portfolio in a position to take advantage of the base-case scenario, as well as protect the portfolio in a worst-case event.”
There are also other forms of alternative investments, such as commodities, real-estate investment trusts, among others, that enhance the investor’s portfolio by reducing the volatility of the investments, but, at the same time, enhancing the overall yield of the portfolio, he said.
“The key to navigating one’s investment portfolio in a volatile and uncertain financial environment is simply to diversify,” he said.
PSE President and CEO Hans Sicat said that since it is an election year, many of the deals will be done during the first quarter, and then slow down in the second quarter as companies let the elections cool off and see who will become the new leader of the country.
Sicat said the fund-raising activities may resume in the third quarter.
“We are reviewing our capital raising [figures]. I’ll wait for the figures to come in as people are distracted. People are more interested in politics than economics or business. So that means you have more guys doing stuff most in the first quarter than the second quarter,” Sicat said.
Aside from expected New Year rush on fund raising, the PSE will also be busy on its acquisition of PDS Holdings Inc., the owner of Philippine Dealing and Exchange Corp., the operator of the bond-market trading.
The PSE also needs to convince regulator Securities and Exchange Commission on how the deal—aimed at merging the trading platforms of equities and bond market —can help the general capital market and the public.
“We want to buy into PDS [Philippine Dealing System] because it will create the price scale for us. As an exchange, it will help us add product lines, it will help take some of the vertical integration issues to risk management having the depository. The longer the delay, the longer it will take for our market to be
developed, to be competitive with our Asean neighbors.
“If you look at their [Asean] models, they’re all integrated exchanges in Thailand, Malaysia and Indonesia. Fixed income is just a division or a department. It’s like a department store. We’re a department store, but we’re only allowed to sell canned goods and not anything else. We’re not complete. That’s a simple explanation,” Sicat said.