COL Midyear Market Briefing by April Tan – My Summary

COL financial gave their midyear market briefing last August 1 in Manila.

English: Bear market 2007-2009. The DJIA peake...
English: Bear market 2007-2009. The DJIA peaked on October 9, 2007 with a closing price of 14,164.53. On October 11, 2007, the DJIA hit an intra-day peak of 14,198.10 before starting its decline. (Photo credit: Wikipedia)

Here are some key takeaways from April Tan’s briefing.

The Philippine stock exchange index (PSEi) is still on track to hit 10,000, it will just take a longer time due to various speed bumps being encountered just like the correction we are currently seeing in the market.  The PSEi is now up by only 3.5% after rising by as much as 12.4% in 2015.

Reasons for the PSEi pull back:

1. Disappointing 1Q GDP and corporate profits.
2. Sell-off in Thailand and Indonesia
3. Growing preference for Japanese and Chinese stock markets
4. Concerns of contagion due to possible Greek default

Thailand and Indonesia are considered as the Philippines’ peers, Thailand stock market is down 5.4%, Indonesia stock market down 8.8% while the Philippines stock market is up by 3.5%.

The last 2 items are not considered major risks anymore:

1. The China stock market is not as attractive as it was before due to the recent sell off, China economy isn’t that strong.
2. Greece did not have a default.

The bad news:

The Philippine stock market might take a while to recover.

PSEi Earnings per share (EPS) growth forecast slows.  The earlier EPS growth forecast for 2015 was 15% and the latest forecast is down to 4%.

Reasons for more subdued outlook:

1. Banks – reporting flat interest net margins.
2. Gaming – over optimistic forecast and delay in operations.
3. Consumers – below expected 1Q earnings results; more interest and more competition.
4. Power – delay in operations

The PSEi was forecast to hit the 8,350 mark by end of 2015 but this has been lowered to 7,950 as of August 1, 2015.

US Fed to start raising rates soon, 25 basis points by September and another 25 basis points in December.

Will we see a repeat of the 2013 taper tantrums? No.

The good news:

The current weakness we are seeing in the stock market is only temporary.

Long term outlook for the stock market remains attractive:

– The Philippines has one of the best fundamental long term stories globally.
– The Philippines is one of the fastest growing economies in the world, 2015 estimate is 6.5% growth for the Philippines compared to high income economies at 2.0% and developing economies at 4.4% growth.
– Liquidity conditions remain favorable for stocks.
– There is less risk of a contagion from a Greek default.
– No signs of a bear market .
– The Philippines is less dependent on exports.
– Strong current account position of the philippines. The current account is measured by the amount of dollars that come in less the amount of dollars that go out.
– The Philippine government is underspending not because it has no money but because of the issues with deployment.
– Increased public-private partnership (PPP) projects.

Will we see a repeat of 2013?  No.

Less risk of a contagion from a Greek default.

What has changed?

– Bulk of Greek debts no longer held by private investors, debts are held by institutions like the world bank, EU and IMF.
– Creation of the European stability mechanism (ESM) and the outright monetary transaction (OMT ).

No signs of entering a bear market

What characterizes a bear market? Over expansion and excessive borrowing.  This is manifested in the economy through high inflation and high interest rates, then the BSP will try to intervene to prevent a bubble economy.
– Debt levels are not high.
– Median net debt to equity ratio (D/E)  of COL monitored stocks only at .28x (quite low).
– Inflation rate is very low.

Not all sectors are facing challenges

Sector Outlook

Positive/Neutral Outlook:

Positive Negative
Airlines Demand for travel is going up.
>Lower oil prices.
Banks Strong lending growth. Ample liquidity conditions hamper ability to increase net interest margins.
Faster EPS growth to resume in 2016.
Properties Favorable demographics. Higher rates hurting sentiment for the sector, particularly
for those focused on residential.
Increasing affordability fueling demand.
Demand for offices remain strong.
Power Growing demand for power and high utilization rates mean ample room for growth.
Profits to recover in 2016 after 2015 profits hurt by delays.

Negative Outlook:

Positive Negative
Telco Demand for broadband remains strong. Cellular revenues are weakening, due to less SMS usage, consumers are using apps like viber, what’s app,  FB messenger and free text.
Intense competition.
Mining Falling commodity prices to hurt revenues and margins.
Consumer Resilient consumers. Intensifying competition.
Lofty expectations.
Unattractive valuations.
Gaming Huge growth potential since sector still in infancy. Expectations too optimistic.
High level of uncertainty.
Poor sentiment.

Recommended COL strategy:

  • Stay invested, focus on Stock Picking.
  • While the stock market’s short term outlook has deteriorated, investors should stay invested as the long term outlook remains attractive.
  • There is also opportunity to generate returns through stock picking
  • Focus on stocks that have been sold off despite having a positive outlook both in the short term and the term.

You can watch COL’s full video here.


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