We set our 12-month target of the Philippine Stock Exchange index (PSEi) at 8,500. We have overweight ratings on the Banks, Property, Consumer and Conglomerate sectors. <\/p>\n\n\n\n
Our top picks: SM, GTCAP, JFC, MONDE, SMPH, RLC, MBT, BDO, AP and CNVRG.<\/p>\n\n\n\n
Just to add: The Philippine market now leads the ASEAN markets with 15.2% gain year-to-date (YTD). It has risen by over 20% from its June low and our 12-month index target of 8,500 translates to around 14% additional gain from current level. Based on historical precedence, this market has a long way to go as it has just started a new bull cycle.<\/p>\n\n\n\n
Bull rally<\/strong><\/p>\n\n\n\n The Philippine stock market is officially on a bull rally as it rose over 20% from its June 2024 low and traded above the 7,400 mark. <\/p>\n\n\n\n We assert that the rising optimism in the market is firmly grounded. Positive macro backdrop \u2013 easing inflation, lower rates, stronger peso, and positive earnings revision \u2013 plus favorable foreign fund inflows should help sustain the market\u2019s momentum. Valuations continue to look supportive too with current market P\/E of 13.1x just slightly surpassing the 1-std dev mark from the mean (12.6x) but still far from the 5-year mean of 16.2x.<\/p>\n\n\n\n History of bull markets in the PSE<\/strong><\/p>\n\n\n\n History tells us that previous bear cycles or low growth\/recessionary years like the 1997-98 Asian Financial Crisis (AFC) and 2008-09 Global Financial Crisis (GFC) have preceded a decade of strong growth — years wherein the Philippine equities market went through bull cycles typically lasting around 2-4 years and resulting in average cumulative gains of between 100% to 250%.<\/p>\n\n\n\n In 1993\u20131997: This bull market lasted about 4 years, driven by economic reforms, foreign investments, and regional growth; the market rose over 200% before the AFC came in 1997.<\/p>\n\n\n\n In 2003\u20132007: Another significant bull market spanned approximately 4 years, buoyed by strong economic growth and a global market boom; the PCOMP gained around 250% before the GFC hit in 2008.<\/p>\n\n\n\n In 2009\u20132013: Post-2008, the Philippine market rallied for about 4 years, recovering strongly as global markets stabilized; the index surged more than 250% during this period.<\/p>\n\n\n\n In 2016\u20132018: A shorter bull market of around 2 years, largely driven by domestic consumption, infrastructure development, and the “Build, Build, Build” program of the govt during that period; the market saw relatively steady growth during this period (less than 30% cumulative gains).<\/p>\n\n\n\n 8,500 PSEi target<\/strong><\/p>\n\n\n\n Looking forward, we set our 12-month PSEi target at 8,500 (translating to 13.6x P\/E, still 1-standard deviation below the 5-year mean). <\/p>\n\n\n\n Key drivers include: (1) stronger EPS and GDP growth \u2013 we forecast EPS to grow by 12% for both 2024\/2025 and we upgraded our GDP growth projection to 6% year-on-year (y-y) for 2024\/2025;<\/p>\n\n\n\n (2) supportive monetary policy and forex \u2013 we expect 25bps rate cut before end-24 and by 100bps in 2025E as we expect inflation to average 3.1% in 2024E and 2.6% in 2025E, and we forecast the peso to settle at P55\/US$ and P54\/US$ for 2024\/25E; and<\/p>\n\n\n\n (3) pick-up in govt spending and investment specifically in infrastructure. In addition, overall spending could also get extra boost from the May 2025 mid-term elections while the passage of the CREATE MORE bill should aid in stimulating The fund rotation back into the Phils equities market could be supported by (1) foreign investors, (2) excess savings and\/or liquidity parked with the BSP, and (3) switch from fixed income into equities. <\/p>\n\n\n\n Foreign ownership in the market remains close to its trough level of 21% vs. peak of 26.4% back in 2017. Foreign investors were net sellers of the market from 2018 to 2023 (P410 billion in total outflows).<\/p>\n\n\n\n
economic activity via lower corporate tax rates.<\/p>\n\n\n\n