Citiseconline sees PSEi building up to new high

MANILA, Philippines - The local stock market is seen to enter a period of solid and steady growth with some modest headwinds as the country remains resilient to developments overseas amid strong public finances, sound macroeconomic fundamentals, a resilient corporate sector, and increased consumer spending, according to leading brokerage Citiseconline.com.

April Lee-Tan, research head at Citiseconline, said the abundance of positive developments is expected to bring good tidings for the Philippine stock market, noting that consumer spending will continue to expand amid robust remittance inflows and growing revenues from the business process outsourcing sector.

Falling commodity prices are also expected to boost consumers’ purchasing power.

Juanis Barredo, vice-president for sales and marketing at Citiseconline, however, warned that the market would have a rough ride given the lingering debt crisis in the euro zone and slowing US and China economies.

He said the Philippine Stock Exchange index’s overbought valuations, the highest among Asian benchmark indexes, would make investors reluctant to make substantial investments in the stock market. The main index is currently trading 17.8 times projected annual earnings.

“The PSEi may need to weigh out as overbought levels ask for pullbacks to stronger support for new buys,” Barredo said.

But he said he sees the PSEi consolidating at 5,050 to 4,750 before shooting up to a new high of 5,500 by the end of the year.

Barredo said the market may hit new highs prior to entering correction phase in September or October, mainly due to headwinds from Europe and the US.

Tan said the PSEi may hit the 10,000-mark in over five years with price- earnings ratio growing 12 times.

Tan said the government’s willingness to spend should augur well not only for the local economy but the stock market as well.

The Department of Budget and Management has earmarked P1.839 trillion for expenditures this year, P1.36 trillion of which has already been released.

 The government has budgeted around P2 trillion for total spending or 10.6 percent higher than the previous year. Government expenditure is seen to rise by another 10.5 percent in 2013 with infrastructure spending up 20.8 percent from the estimated P409.8 billion this year.

Another factor seen to prop up investor sentiment is the government’s efforts to pump up infrastructure spending with around P55.19 billion worth of projects under the Public-Private Partnership (PPP) program likely to be auctioned off in the second half of the year. These include the School Infrastructure project (P10.04 billion), LRT Line 1 South Extension, Operation and Maintenance (P9.2 billion), NAIA Expressway Phase II (P15.77 billion) and the NLEX-SLEX Connector Road (P20.18 billion).