There is still room for growth for Philippine stocks, with the benchmark Philippine Stock Exchange index (PSEi) possibly reaching another milestone high of 7,800 this 2015, according to stockbroker RCBC Securities.
After a tamer GDP growth rate in the 3rd quarter of 2014, the Philippine economy is expected to do better this year, “with government spending coming from a low base, export growth being sustained and low oil prices boosting consumers’ purchasing power,” says RCBC Securities in a special report.
Expected potential growth drivers for the Philippine economy this year include:
- faster government spending (which was hampered by the Supreme Court decision to strike down the Disbursement Acceleration Program last year);
- low interest rates;
- softening inflation;
- sustained growth in corporate earnings; and
- economic stimulus in Japan and Europe (through their respective Central Bank’s Quantitative Easing programs) which will lead to more fund inflows to other countries such as the Philippines
Still a few risk factors remain, including the upcoming 2016 national elections, geopolitical risks in China, Russia, and the Islamic State, and possible disappointing earnings among Philippine companies.
RCBC Securities says Philippine stocks are currently expensive at the moment, with a 2015 Price-to-Earnings (P/E) ratio of 19.5x. This means investors are willing to pay 19.5 times the corporate earnings expected to be earned by Philippine companies in 2015.
The PSE is actually the stock market with the highest P/E ratio among its Southeast Asian peers (see table below), but according to RCBC Securities, the expensive valuation has been existing since 2012 but that did not stop investors from further accumulating Philippine stocks.
The Special Report from RCBC Securities also contains their market outlook and specific stock recommendations in 2015. Their top stock picks include Megaworld Properties (MEG), PLDT (TEL), and 8 other PSE stocks.
To access the complete Top 10 Stock Picks and the justification for each recommendation, click here to get this Special Stock Report from RCBC Securities.