WE ARE ABOUT to enter the Lunar Year of the Red Monkey on Feb. 8. The monkey is cunning, naughty, exuberant and the smartest of all animals. This sign is seen to bring a lot of volatility in financial markets, requiring a more cautious investing in a more challenging environment.
The consensus view is that the bulls—although subdued by local corporate earnings and macroeconomic growth jitters alongside a number of external headwind in 2015—may perform better this year despite the gloomy opening seen so far. Six out of eight brokerage houses polled by the Inquirer projected the Philippine Stock Exchange index (PSei) rising by the end of the year alongside a double-digit growth in average corporate earnings. At least, two others believe the bull cycle has ended.
Early in the year, the local market has knocked on bear territory, recently falling by as much as 22 percent from the market’s peak closing of 8,127.48 seen on April 10, 2015. The last time the local market touched bear territory was in June 2013, when the US Federal Reserve first hinted about the unwinding of its aggressive monetary stimulus. However, the market then rebounded immediately and even ended the year on a positive note.
Last year, the local stock market lost a total of 278.49 points or 3.85 percent to close 2015 at 6,952.08, ending lower for the first time after a six-year run-up. At its closing level, the index traded 16.84 times consensus earnings for 2016, higher than the historical price to earnings (P/E ratio) of 14 to 15 times and also higher than valuations elsewhere in the region.
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Note that the stock barometers of Hong Kong (-6.8 percent), Malaysia (-4.31 percent), Indonesia (-12.58 percent) and Singapore (-14.17 percent) fell deeper last year.
This year, forecasts for the PSEi among those who are upbeat for the year range from as low as 7,350 to as high as 8,000, notwithstanding escalating risks from China—where currency devaluation and stock market routs together with hard economic landing fears have been a recurring theme since last year. Alongside other external headwind such as the start of the US interest rate-tightening cycle, geopolitical tension in the Middle East and North Korea and concerns on rising debt in emerging markets—investors are closely looking at the 2016 Presidential elections. Some have described it as a “make or break” catalyst for the Philippines.
