Hello everyone, just wanted to share the second half 2016 Philippine stock market outlook presented by April Tan, head of research of COL:

  • The market is expected to continue to do well in the long run, given the strong economic foundation laid by the previous administration, the new administration’s action-oriented socio-economic agenda, and our resilient domestic economy. However, these positives have already been priced in by the stock market.
  • The Philippine stock market is currently fairly valued, with the PSEi trading at around 20x its 2016E P/E. That said, there are sectors and themes that we believe will be the main beneficiaries of the initiatives of this administration. We recommend infrastructure (MPI, MBT, BDO) and tourism (CEB, ALI, RLC) related stocks, as the government focuses on infrastructure spending and rural development. We also recommend certain consumer names (SM, DNL, CNPF, CIC), whose businesses are supported by the Philippines’ favorable demographics.
  • With some blue chip companies fairly valued right now, investors can also rotate to smaller-cap stocks that are still cheap, such as EW and EEI. Our bottom-up picks are EDC or FGEN, which we anticipate will benefit from recovering global coal prices, as their cost to produce energy becomes more competitive.
  • Investors should expect volatility in the short term, and manage their risk accordingly. Investors are recommended to adopt a peso-cost averaging method into the next six months, and to diversify their portfolio by buying several stocks from our list of recommended stocks, at their Buy Below price levels. Another way to diversify one’s exposure in the market is to buy any of the four equity index funds found in COL Fund Source. 

My takeaways from COL’s market outlook:

  • Still a positive outlook for 2H2016, the economic foundation was very well laid out by our previous administration and the new administration has committed to continuing this foundation through it’s action-oriented socio-economic agenda.  However, these factors have already been priced into our current stock prices.
  • The Philippine stock market is currently fairly valued.
  • Good stocks to invest in:
    • Infrastructure/Banking stocks:
      • MPI
      • MBT
      • BDO
    • Tourism
      •  CEB
      • ALI
      • RLC
    • Consumer
      • SM
      • DNL
      • CNPF
      • CIC

One very striking recommendation from April Tan is to adopt a peso-cost averaging method into the next six months.  This further validates, that indeed the peso-cost averaging strategy we are also recommending is an excellent and effective strategy.

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