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[ANALYSIS] A soft and range-bound stock market that has not lost its luster

Den Somera

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[ANALYSIS] A soft and range-bound stock market that has not lost its luster
Whatever your investment intentions are, stick to companies within the investment areas that both have short-term and long-term potential

The market has been soft and range-bound. Just when trading approaches the 6,700 level of the PSEi, the market losses steam and retreats.    

The reasons that have been offered to explain why this is so are more technical than fundamental in nature. Moreover, the market’s fundamentals are intact and remain positive.  

For instance, our full-year average inflation rate for 2023 was still at 6.0%, but in December this slowed down to 3.9% from 4.1% the previous month of November. And this further eased to 2.8% in January this year.

Inflation rate may not yet stabilize this low, but it is expected not to go beyond last year’s average considering previous measures done here and abroad to curb it. The US Federal Reserve has already expressed plans to cut interest rates by March, which was initially received negatively last week by equity markets like ours considering that this was anticipated to happen sooner. 

Likewise, the economy’s GDP for 2023 was positive at 5.95%, which is more less close to the lower range of the government’s growth target of 6.5% to 7.5%.  

It is worth to mention, though, that critics are not satisfied. They find it not as significant as it is. 

The GDP for the 4th quarter was only 5.6%. This is way below the 7.1% record posted in the same period in 2022. Furthermore, this is much lower than the 7.6% record of the economy in 2022.  It is, by far, “the lowest since 2011, excluding the contraction posted during the pandemic,” according to one comment.   

Comparatively, the Philippines’s growth rate of 5.95% is more robust than China’s initial reported growth data of 5.0%, Vietnam’s 5.0%, and Malaysia’s 3.8%. This makes the Philippine as one of the fastest-growing economies in the region.

Growth boosters for 2024

Government projections show that remittance inflows from workers abroad will be sustained.  The IT-BPO sector, which is growing the fastest among our neighboring competitors, will continue to grow as well.  

Export is another: Trade and Industry Secretary Fred Pascual has expressed optimism that increased demand for Philippine exports will be a driving force behind the country’s economic growth in 2024.  This is in addition to factors such as falling oil prices, robust public spending, investment-grade credit ratings, and structural reforms contributing to growth, he added.

Recently, the US recognized the potential of the Philippines’ role to support semiconductor supply chain requirements and in addressing global shortages caused by the pandemic and trade tensions.  Along with 6 other countries, the Philippines was designated to receive funding aimed at strengthening and diversifying the semiconductor supply chain as part of the CHIPS and Science Act passed by the US Congress in 2022.  

Likewise, the US is exploring the use of its Development Finance Corporation to fund RE and infrastructure projects in the PH, to enhance power supply, reduce electricity rates, and attract more investors.  

According to National Economic and Development Authority Secretary Arsenio Balisacan, construction and tourism will be a big factor in the economy’s growth for 2024, too.  

International visitor arrivals doubled in 2023 compared to that of 2022. This is likely to continue as we open up to foreign visitors and increase international tourism revenues significantly. The same is likely to be expected in the construction industry as the private and public sectors step up with their projects in 2024. 

Investment areas

Due to the foregoing developments, investments in power, telecommunications, construction, tourism, services and exports are likely to primarily benefit in the country’s economic growth projections. The Maharlika Investment Corporation, which is the entity managing the Maharlika Investment Fund, also added agroforestry and industrial urbanization, mineral processing, transportation and aviation to benefit in the process.

You may choose any stock favorites in these investment areas.  But if I were to make a recommendation, initially confine your selection to companies with proven record of stability and consistent operating performances of profitability, together with records of dividend-plays.  

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In other words, start with companies that have established intrinsic values and good capitalization.  Compliment it with some growth stocks.  

To mention some of the stocks that could stand up to the said standards, together with good liquidity and trading record, are the likes of GT Capital Holdings, Inc. (GTCAP), Manila Electric Company (MER), Ayala Corp. (AC), Aboitiz Power Corporation (AP), DMCI Holdings, Inc. (DMC), Megaworld Corporation (MEG), Robinsons Land Corporation, International Container Terminal Services, Inc., and Philippine Long Distance Telephone Company (TEL).  There a lot more, though, if you look closer to companies with strong growth prospects.   

You can buy them now any time, too, considering their current prices.  For instance, Jofer Gaite, president and chief trader of Westlink Global Equities, Inc., says the following stocks have a lower price earnings multiple (P/E) of 13.75x of the PSEi:  GTCAP is 6.0x P/E with a Price to Book Value (P/B) of 0.61x; ICTS with 13.51x P/E and P/B of 4.58x; MEG with 3.61x P/E and P/B of 0.27x; and RLC with 6.71x P/E and P/B of 0.57x.

There are more stocks in the various investment areas recommended with good value and trading performance.  All you need to do is spend a little time browsing PSE and related market websites.  

Another strategy, according to Joel de la Peña, market strategist and chief trader of H.E. Bennett Securities, Inc. is to revisit some stock favorites that continue to trade at a discount to their historical prices.  They could be good candidates for quick trading positions.  

Whatever your investment intentions are, stick to companies within the investment areas that both have short-term and long-term potentials. That way you don’t get stuck with stocks with no fundamental value or growth potential.

In the meantime, there is a likelihood the market may soon break its longtime resistance level of 6,700 considering unfolding developments especially in the US.  

However, the market may experience a setback by what is happening in the local political front. This is not as much by the essential issues of the charter change but by the use of it as an excuse in the power struggle that is brewing between the Marcos and the Duterte camps. As it is, it is getting dangerous and discouraging to foreign investors, to say the least.

We’ll continue with more stock pick recommendations next time. Don’t miss it. – Rappler.com

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.com.

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