After a record recession amid the prolonged COVID-19 pandemic and the consequent lockdowns in 2020, investment house First Metro Investment Corp. (FMIC) is “cautiously optimistic” on the country’s economic recovery this year.
FMIC and the University of Asia and the Pacific, in a joint briefing on Thursday, said that after contracting 10 percent for the first three quarters last year, the country’s gross domestic product (GDP) would return to positive territory and expand by 5.5-6.5 percent this year.
The main-share Philippine Stock Exchange index (PSEi) is projected to hit the range of 7,800 to 8,100, supported by a minimum of 24-percent to as much as 29-percent recovery in corporate earnings.
“As we have proven time and again, we can survive calamities and crises and emerge victorious in the end. Even in the midst of the pandemic, private companies were able to raise an unprecedented amount of $8 billion in the offshore market. Our GIR (gross international reserves) hit an all-time high, supporting the peso. OFW (overseas Filipino worker) remittances and the IT-BPO (information technology/business process outsourcing) sector also defied bleak expectations. Considering what we have achieved despite the odds, we expect the Philippine economy to rebound in 2021,” FMIC president Jose Patricio Dumlao said.
This year’s economic recovery is expected to be supported by OFW remittances, which are seen to increase by 4-6 percent, alongside increased government spending and market reform initiatives designed to reinvigorate the economy.
A mild inflation rate of 2.7 percent and the completion of big-ticket projects—which include the Metro Manila subway, North railway, South Luzon Expressway extension, North Luzon Expressway East, Metro Rail Transit 7, and Connector-2, easing traffic conditions in Metro Manila—are also seen to support sanguine prospects for the year. FMIC also expects the rollout of COVID-19 vaccine and a more focused and localized restriction to boost the country’s economic performance.
Interest rates are expected to remain low and move within a tight range—plus or minus 25 basis points—from the current levels, depending on how quickly economic recovery gains momentum.
With the vaccine rollout, corporate earnings recovery, market reform initiatives and the foreseen return of foreign funds to emerging markets in Asia, FMIC was “bullish” and “constructive” on the PSEi, FMIC head of research Cristina Ulang said.
Investors were expected to pay about 18 to 19 times the projected earnings this year, but long-term price to earnings ratio could be moving toward just 15 times the earnings, Ulang said.
Breaking down earnings growth per sector, Ulang said the range could be from a low of 10 percent to a high of 50 percent versus last year’s contraction of 36 percent in the first nine months.
As banks and property sectors were the most battered last year, Ulang said these two sectors, partly due to base effect, would lead earnings recovery this year with earnings growth consensus of between 30 percent and 40 percent.
She said banks would benefit from increased liquidity in the financial system and the improved asset yield, even as rising bad loans remained a risk. With improving foot traffic in shopping malls alongside greater OFW purchases of residential units, she added the property sector would likewise do better this year.
The energy and utilities space were likewise seen to deliver steady earnings this year.
In 2020, the PSEi declined by 8.64 percent to close at 7,139.71, but it rebounded sharply from the year’s low of 4,623.42 at the beginning of the lockdowns in March.
For FMIC, stock picking should be very selective with preference for stocks with strong balance sheet, good earnings prospect, below market and below sector average valuation, and good dividend paying capability.
In the debt capital market, FMIC sees 2021 as the strategic time to enter the market amid the low-rate environment. The interest in offshore bond issuances is expected to be sustained as rates in global markets remain low and liquid.
In the equity capital market, more listings are also expected this year.
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