September 6, 2019

9M19 Recap 4Q19 Philippine Stock Market Outlook

The PSEi traded within a range in 9M19. The decline of interest rates led by the PH10YTN rate buoyed the PSEi in early 2019, but the US and China trade war and the Philippine economic slowdown of 1H19 offset this and dampened the PSEi throughout the year.

Per PSE Weekly data, net foreign buying dwindled from PHP32.61 bn at the end of March 2019 to PHP28.09 bn at the end of June 2019 and then to PHP6.39 bn on September 27, 2019. Clearly, foreign funds have been leaving Philippine stocks in 9M19.

The recommended portfolio of seven stocks with equal weighting from the Philippine Stocks Book as of December 10, 2018 outperformed the PSEi and ASI. Five of the seven are non-bank stocks with residual values, positive ROICs, blended multipliers less than 24x, PEG ratios less than 1x and PCF less than 16x.

Generating the highest share price appreciation were GSMI (+94.4%), HOUSE (+94.3%), RLC (+16.7%) and MPI (+4.4%). Generating losses were the banks MBT (-14.3%) and UBP (-10.4%) and MEG (-9%). UBP though paid the highest cash dividend yield of 2.88% followed by RLC with 2.38%.

2019 so far remains as a season for positioning in value stocks for favorable medium to long term growth. With interest rates and stocks’ PERs already low, catalysts for a turnaround in the PSEi’s performance are recoveries in stocks’ earnings and Philippine GDP growth. Without these, the PSEi is seen confined at below 8,000.

The improvement in the Philippine yield curve from flat to inverted from 4Q18 to August 2019 to a steep one in September 2019 signals an improvement in economic growth in 1Q20 coming from the 1H19 economic slowdown. This is just one quarter away, and all the stocks positioning in 2019 may already bear fruit in 1Q20.

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