PSEi - This Week Market Outlook

Opinion Issued on Jan. 30, 2014

Support: 6000/5950

Resistance: 6200

Broker: First Metro Securities

ANALYSIS AND RECOMMENDATION

4Q 2013 GDP came in better-than-expected at 6.5% (3Q13: 6.9%, FY13: 7.2%). 2013’s strong growth numbers have already been priced in. Expectations of (slightly) slower growth numbers this year have negatively impacted share prices YTD. For the next week, local equities may continue to trade with a downward bias on the back of the slowing growth outlook for the ASEAN region. The Monetary Board is also scheduled to meet on 6 Feb; consensus expects no change in policy rates. 

ACTION: The market continues to trade within a short term upward channel range. However, the intermediate picture still shows weakness as the pullback from 6,200 may have been a potential lower-high. 

Trade the short term range if support from 5,950 to 6,000 continues to hold. Keep stops on a break below 5,950, as a break below this level may lead to further downward pressure.

Support: 6000

Resistance: NA

Broker: AB Capital Securities

ANALYSIS AND RECOMMENDATION

The weakness of emerging market currencies has raised concerns that we are seeing a repeat of the crisis in 1997. However, we point out that there have been several changes that make this situation different from that time. First, the Philippine peso now adopts a floating exchange rate policy compared to a managed float policy in 1997. Capital flight will no longer be rapid since the market mechanism easily adjusts the exchange rate to its true value. 

Second, international reserves are at $83 billion in 2013 from just $15 billion in 2000, which reinforces the confidence in the Philippine Peso. The Bangko Sentral ng Pilipinas can also use the reserves to maintain the currency at favorable levels.  

Also, the PSEi is now trading at 15.85x 2014 P/E vs peer median of 13.05x. We expect valuation multiples to remain elevated due to robust domestic liquidity and high GDP growth rates. However, slower earnings growth will keep re-rating limited. 

ACTION: From a technical perspective, we view the PSEi's close above 6,000 as a positive indication of a strong support level. This is necessary to keep the ascending triangle formation valid. We think the formation has a short term target of 6,300. 

We view this pullback as an opportunity to buy individual issues with strong EPS growth and valuation upsides. We expect the market to display gains next week driven by positive consensus revisions to 2014 GDP estimate after the strong full year GDP of  2013.


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