BDO-Nomura Securities, an online brokerage firm, said the benchmark Philippine Stock Exchange index (PSEi) may breach the 9,000-point level next year and possibly hit the 10,000-point milestone by 2019, as corporate earnings continue to drive growth.
BDO-Nomura Securities research head Dante Tinga Jr. said the 30-company PSEi may settle at around 8,300 at the end of this year and grow by 13.9 percent to 9,100 in 2018. This will further grow by 13 percent to about 10,280 by 2019.
Tinga added growth next year will be driven mainly by rising earnings per share, led by the property, banking and industrial sectors. It is, however, bearish on the consumer and telecoms sectors.
“There is no bubble in the property sector and sales continue to be strong,” he said.
“Tax reform and accelerated infrastructure spending should provide long-term tailwinds to the sector. Concerns on residential oversupply have eased. Real estate remains a direct proxy for the Philippine economy,” Tinga said.
On the other hand, the banking sector is seen to benefit from the strong economic activity, which will support loan growth. Rising rates, meanwhile, provide near- to medium-term net interest margin boost.
“High capex companies with dominant franchises are seeing cash flows and balance sheets at positive inflection point. Valuations are still reasonable, with most stocks trading at a discount versus regional peers,” he said, referring to the Industrial sector.
But Tinga also sees risks to these rosy prospects, including rising inflation driven mainly by fuel costs, as well as possible delays, dilution or reversal of some of the economic reforms promised by the Duterte administration.
The broker is bearish on the telecom and consumer sectors, with the telecom players undergoing structural shifts and allotting huge amounts for capital expenditures, while margins are under pressure.
For consumer companies, Tinga said these firms face difficulty in translating the strong macro backdrop into profit growth due to intensifying competition and rising input costs.