Philippine Stocks May Bounce Back Into Bull Market on Earnings, Analysts Say

(Bloomberg) — Philippine bulls see the nation’s stock index climbing back to 8,000 later this year as corporate profits recover and economic growth accelerates.

Earnings of companies in the benchmark gauge grew faster in the second quarter, supporting expectations of double-digit expansion this year, according to analysts at COL Financial Group Inc. and First Metro Investment Corp. GDP growth should pick up from a four-year low in the second quarter as inflation continues to cool while the government ramps up spending, they said.

“The second-quarter results give us more confidence that the market will hit our target,” said First Metro’s Cristina Ulang, who forecasts earnings to grow 10% this year and for the index to reach 8,400 to 8,800 by the end of 2019. “We should see more improvements in earnings and the economy as government spending steps up.”

After breaking into a bull run that sent the Philippine Stock Exchange Index to a 16-month high in July, the benchmark measure slumped 7.4% and closed at 7,747.38 on Tuesday as the trade war between the U.S. and China escalated. Slower-than-expected second-quarter Philippine economic expansion and another round of rebalancing, raising the weighting of China shares in the MSCI Index, also added to the weakness.

After getting cut by more than half to 4.34% in 2018 when margins and consumer spending were squeezed by rising inflation, earnings per share of companies in the Philippine Stock Exchange Index are forecast to grow by 14.3% this year, the fastest pace since 2012, according to data compiled by Bloomberg.

“It’s safe to keep our targets right now for there’s nothing extremely negative,” said April Lee-Tan, research head at COL Financial. “The second-quarter results are just right and it supports our outlook that earnings will get better.”

Tan forecasts the benchmark index will reach 8,600 this year on a prediction that earnings will expand 13%. Property companies and banks are likely to sustain strong results while cooling inflation will benefit consumer-related companies, some of which had some earnings disappointments, such as Jollibee Foods Corp., she said.

More than $23 billion in Philippine stock market value was erased from last month’s peak through Tuesday, while overseas funds withdrew almost $140 million over the same period. From a peak of 16.9 times 12-month estimated earnings in July, the outflows helped trim valuations to 15.6 times, a three-month low.

“Corporate earnings are showing resilience and will hit double digits this year — that’s why the index bounces each time it hits the 7,700 level,” Ulang said. “Earnings aren’t bad so every dip is a buying opportunity.“

Still, “a climb above 8,000 will be unsustainable if government spending and economic growth don’t pick up,” said Rachelle Cruz, an analyst at AP Securities Inc. “The trade war will also be a constant headwind.”

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