BDO Nomura sees PSEi rising to 9,100 in 2018

By Arra B. Francia, Reporter

THE MAIN INDEX could soar to the 9,100 level by the end of 2018, as earnings growth of listed companies push share prices up amid inflationary pressures in some sectors.

A market forecast by BDO Nomura Securities, Inc. noted a bullish outlook on the Philippine economy next year. This year, the company has projected the Philippine Stock Exchange index to close at around the 8,300 mark.

“We’re looking at 9,100 yearend target for the index, yearend 2018. We’re still very bullish on the Philippine stock market. It’s just that we’ve had to adjust our stock picking strategy to take into account the rising inflation, rising interest rate in the background,” BDO Nomura Research Head Dante R. Tinga, Jr. said in a briefing in Makati on Monday.

The local stock market’s climb will come amid the projected 4.3% inflation the Philippine economy will record in 2018, which is above the Bangko Sentral ng Pilipinas’ target of 2-4%.

BDO Nomura said its higher inflation forecast, which was previously at 3.8%, was revised upward after taking into account the higher oil price assumption of $65 per barrel.

“Our view is the acceleration in earnings growth should more than offset the risks associated with rising inflation. So that’s why we’re staying positive on Philippine stocks,” Mr. Tinga said.

BDO Nomura gave a positive outlook on the property, banking, and industrial sectors, saying firms under these sectors can withstand the effects of faster inflation.

The property sector, for instance, will benefit from both the implementation of the tax reform package scheduled for the first quarter of 2018 as well as the aggressive infrastructure spending of the government.

The bicameral conference committee in Congress is currently reconciling the House and Senate versions of the tax reform bill to ensure its passage and implementation by next year.

“Tax reform and accelerated infrastructure spending should provide long-term tailwinds to the sector. Concerns on residential oversupply have eased. Real estate remains a direct proxy for the Philippine economy,” the company said in a presentation handed out during the briefing.

BDO Nomura, meanwhile, adapted a bearish stance on consumer and telecom industries, as these will be the companies directly hit by an uptick in prices.

“Companies face difficulty translating strong macro backdrop into profit growth due to intensifying competition and rising input costs,” BDO Nomura Research Analyst Angelo Antonio S. Torres said in a market comment.

With this, BDO Nomura said its top stock picks are Ayala Land, Inc., SM Prime Holdings, Inc. for property, Bank of the Philippine Islands and Metropolitan Bank & Trust Co. for banks, and Jollibee Foods Corp. and Shakey’s Pizza Asia Ventures, Inc., and Wilcon Depot, Inc. for consumer stocks. 

Other than inflation, BDO Nomura considers the slowdown of the business process outsourcing industry to be one of the risks to its bullish view on the Philippines. 

“We already account or incorporate some slowdown. Industry revenue growth slows down from 17% in the last six years to 9% in the next six years. But if the slowdown is more severe than that then we think the adverse impact on the economy could be much more significant than what we forecast,” Mr. Tinga said.

Delays in carrying out government reforms could also affect the economy, but Mr. Tinga said this has not become a significant risk yet as consumer and business sentiments are still positive.