ORIGINALLY APPEARED AT BUSINESS MIRROR
By Roderick L. Abad
July 18, 2015
AMID next year’s presidential elections—and even if tumultuous world events, like the financial convulsions in China and Greece’s bailout strategy, prevail—the bull market is expected to continue, with the benchmark Philippine Stock Exchange index (PSEi) breaching the 8,000-point level by end of 2015.
Philam Life Equity Fund Management Head Eduardo R. Banaag Jr. said the estimated intrinsic value of the country’s equity market today is 18.5 times.
“So, we think the right valuation of this market should be at about 8,081 by year-end,” he said of the trend, as implied by the rise in earnings per share.
Citing long-term prospects on how trends are moving from 2005 to 2015, Banaag noted that the index is heading toward the 7,400 mark.
But, because of positive international developments, local shares have already managed to go past that psychological barrier, when PSEi recovered from its slide last week, adding 224.54 points (+3.04 percent) to close at 7,617.13 on Thursday. Wednesday’s index ended at 7,392.59.
The bullish market could be attributed to positive China data and resolution of the Greece debt turmoil.
From April to June 2015, the economy of China rose by 7 percent—surpassing the forecast of 6.9 percent—bringing the first-half gross domestic product to 7 percent and on track to meeting the government’s full-year target.
This could be attributed to Chinese policy-makers easing monetary actions over the last few months, including cuts in interest rates and reserve requirement ratio of banks.
What is also improving is the manufacturing sector in the world’s most populous nation in June, as industrial output grew 6.8 percent year-on-year compared to the 6-percent target.
Retail sales increased in the same month and hit 10.6 percent, as against estimates of 10.2 percent.
The Greek debt crisis, on the other hand, is now resolved on an interim basis. This came after the parliament in Athens passed austerity measures, allowing the small European economy to remain in the euro zone and receive a $95-billion bailout.
These include an increase in value-added tax on all goods and services, as well as extending retirement age, among others.
Meanwhile, the world’s superpower economy has proven resilient in the face of tumultuous global events.
The United States is picking up momentum following the shrinking at a yearly rate of 0.2 percent from January to April this year.
On Wednesday US Federal Reserve (the Fed) Chairman Janet Yellen said that the Fed will likely begin to raise interest rates this year had the economic state remained on track.
The Fed’s outlook is based on estimates that the labor market continues to improve and inflation starts to move higher toward the 2-percent goal.
While the modest signs of improvement of these influences from outside of the country somewhat have eased the concern of the investing public, what now worries them on the local front is the upcoming 2016 presidential polls.
With the looming changing of the guard in the country’s top leadership post, the coming electoral exercise usually poses a “risk” in a buoyant market.
But it is too early to assume a negative outcome, according to Philam Asset Management Inc. (Pami) President Ferdinand Berba, as the filing of candidacy is scheduled in October this year.
“By that time, it’s going to be either a three-cornered race, four-cornered race, or five-cornered race,” he said, while citing the projections of political analysts.
Although the identities of the contenders are yet to be known, various surveys already have indicated the top 10 “presidentiables”: Vice President Jejomar C. Binay, Sen. Grace Poe, Manila Mayor Joseph Estrada, Davao City Mayor Rodrigo Duterte, Sen. Miriam Defensor-Santiago, Sen. Ferdinand “Bongbong” Marcos Jr., Interior Secretary Manuel Roxas II, Sen. Francis Escudero, Sen. Allan Peter Cayetano and Sen. Antonio Trillanes Jr.
Among them, the controversy-laden Binay of the United Nationalist Alliance is seen to be the closest archrival of the eventual standard-bearer of the current administration.
Just last week, President Aquino met with Poe, Escudero and Roxas, but they failed to reach a consensus on who should be the lead candidate of the Liberal Party, hence, another meeting is set on a yet-to-be-determined date.
“It really doesn’t matter who the next president will be. Because if you look at the other elections in the past, or every time [there’s a] new administration, of course, except for Erap [former President Joseph Estrada], the economy is doing well,” he said.
Based on a report of Thompson Reuters on the performance of the stock market of the past five administrations, it improved by a bit over 25 percent, when former President Fidel V. Ramos was elected in 1992, and reached up to around 75 percent upon his exit.
When Estrada came in 1998, the stocks were up by merely 10 percent, and then they plummeted to at most negative 40 percent, owing to graft-and-corruption scandal that led to his ouster in 2001.
The equity market’s downfall continued when Gloria Macapagal-Arroyo inherited a distressed government via the Edsa 2 People Power movement; but not until her third year, when she started to bring back investors’ confidence that led to the stocks’ recovery up to her reelection, which marked an optimum improvement level of over 100 percent.
But among the successive leaderships, it is during President Aquino’s term that the local stock market has witnessed the highest and most consistent performance since assuming office in May 2010.
From over 25-percent growth, the local shares have expanded to almost 150 percent in his five years of tenure.
“And that is foreseen to continue, regardless of who the next president will be,” Berba said. “We are growing better than the others. If you look at the other stocks from our neighbors, you’ll see that the PSE index is doing much better than the [region’s benchmark] MSCI [Asia ex-Japan].”
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