Slowing stock market ripe for bargains – BPI
The market fell from a high of 8,127 in April to 7,323 in June, but BPI sees fair value at 7800

MANILA, Philippines — The Bank of the Philippine Islands (BPI) remains cautiously optimistic amidst a steadily slowing Philippine Composite Index (PCOMP) and said that there is now opportunity for investors to find bargains in market.

“The party is not over and the recent market pull back should offer a good buying opportunity for investors to pick up well-run companies trading at attractive valuations,” BPI Securities Corporation CEO Mike Oyson said on Saturday, June 20, at the 2015 BPI Trade Pinoy Millionaryo Conference.

The Philippine Composite Index (PCOMP) has been on a roller coaster ride this year with the index rallying to a high of 8,127 on 04 April 2015 and dropping to a recent low of 7,323 on 09 June 2015.

In what seemed to have been a year that started on good footing for the stock market, it is now appearing to slow down.

Oyson said that the recent pull back has been driven by investor concerns that the US Federal Reserve (Fed) would raise interest rates at the end of the year and that such rate hike would trigger massive foreign portfolio outflows from emerging markets as foreign funds search for higher yields.

He added that he remains optimistic and sees 7,800 as fair value for the PCOMP but warned that the full effect of the foreign portfolio unwind may have yet to come through – although the market may have already seen a preview.

Oyson pointed out that from a peak of $1.2 billion (P53.9 billion) in net foreign inflows in April 2015, net foreign inflows into the Philippines has already fallen to $423 million (P19 billion) as of 18 June 2015, a level even lower than at the height of the pullout in 2013.

To a certain extent, Oyson explained that the recent pullback was further exacerbated by foreign portfolio realignment as foreign investors played catch up in China and Japan and as they started to reposition for an eventual inclusion of China A-shares in the US based MSCI.

Oyson said that while a US Fed rate hike may have near-term negative implications on liquidity into emerging markets, he nonetheless believes that such outflows will eventually return as we had seen in 2014.

“We have seen this movie before,” he added.  

According to Oyson, in light of the recent market pull back, investors should focus on good bargains especially companies with strong brands and with solid management.

He also recommended buying stocks in companies that are well-positioned to take advantage of structural developments in the economy such as the consumer stocks.

Looking ahead

Looking into 2016, Oyson is optimistic on the index given the Philippine stock market has historically done well prior to elections.

Oyson commented that the Philippine market valuation, while high at 20x historical PE (Price to Earnings ratio), is still below the historical peak of 23x.

He added that the economy, despite showing a slight slowdown in consumption expenditure in 1Q15, remains robust and is likely to grow at the 6% level in 2015.

Oyson reiterated that the strong underlying fundamental story of the Philippines remains intact.

In his opinion, the Philippines remains a domestic-driven economy with a young population and with strong macro fundamentals, including a healthy banking system.

Oyson said that 2016 will be a crucial year for the Philippines as positive foreign investor perception on the Philippine market is key to maintaining PE multiples in the 20x level.

The outcome of the elections, he said, will be key in determining whether the Philippines will move from the “happy hour to the main party” or investors will have to call this part of the cycle as the “last call of the happy hour”. –

$1 = P 44.98 

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