A MORE bullish outlook for the stock market is seen for the second half of 2019. — PHILSTAR/KRIZ JOHN ROSALES

By Arra B. Francia, Senior Reporter

THE Philippine Stock Exchange index (PSEi) is seen to end the year within the 8,400 to 8,600 range, boosted by lower interest rates and the expected earnings growth for listed firms for the rest of the year.

This is according to investment banking firm First Metro Investment Corp. (FMIC), which said that they are more bullish on the local equities market for the second half.

“Our confidence arises from the fact that the consensus earnings estimate moving forward is upward, we’ve seen CAGR (compounded annual growth rate) growth earnings wise,” FMIC Vice-President and Head of Research Ma. Cristina S. Ulang said during the firm’s Midyear Economic and Capital Markets briefing in Taguig Monday.

Ms. Ulang said that the CAGR of companies stood at 5.9% from 2010 to 2015, rising to 8.1% from 2016 to 2018.

“We expect 10.6% growth based on the consensus estimate for the period 2019 to 2021,” Ms. Ulang said.

The 8,400-8,600 target assumes a corporate earnings growth of 10% for the second half of the year, higher than the first quarter’s 8.6%. FMIC also set a price earnings ratio of 18-19x for the period.

The company is also banking on the policy rate cuts by the Bangko Sentral ng Pilipinas, given its history in boosting the PSEi. Ms. Ulang noted that the main index soared by 33% in 2011 after the central bank reduced rates by 100 basis points (bps). The same happened in 2016, with the PSEi jumping 25% after a 100-bp cut.

“So we’re seeing the PSEi react to the RRR (reserve requirement ratio) cut and the promise of policy rate cut of more in the second half of this year,” Ms. Ulang said.

At the same time, FMIC sees PSEi-member companies spending P600 billion in capital expenditures from 2018 to 2020, double the P300 billion they spent from 2010 to 2011.

The amount of capital to be spent over the three-year period could prompt companies to raise funds through the equities market, given that only P37.89 billion has been raised at the stock exchange during the first half.

“We expect volumes to slightly recover with a few equity issuance for the rest of the year,” FMIC Executive Vice-President Daniel D. Camacho said in the same briefing, citing the P7.7-billion maiden offering of coconut products manufacturer Axelum Resources Corp. scheduled for the fourth quarter of the year.

FMIC’s stock picks for the period include BDO Unibank, Inc. and Metropolitan Bank & Trust Co. (Metrobank) for banks; Universal Robina Corp., San Miguel Food and Beverage, Inc., and Wilcon Depot, Inc. for consumer; and Ayala Land, Inc., Megaworld Corp., and Robinsons Land Corp. for property.

On the infra sector, it favors Megawide Construction Corp. and Eagle Cement Corp. It also cited Ayala Corp., JG Summit Holdings, Inc., Metro Pacific Investments Corp., and GT Capital Holdings, Inc. for conglomerates, and Aboitiz Power Corp. and Manila Electric Co. for power.

On the other hand, FMIC sees record volumes to be raised at the fixed-income market this year. With P408 billion raised from a combination of corporate, bank, and government issuances, the first half has already exceeded the P319 billion seen in full-year 2018.

This was mainly boosted by the government’s 22nd tranche of Retail Treasury Bonds at P236 billion, almost twice its 2018 issuance.

Other issuers were Rizal Commercial Banking Corp., BDO, Metrobank, and SM Prime Holdings, Inc., among others.

“Robust performance was boosted by cuts in the reserve requirement and policy rate,” Mr. Camacho said.

At this rate, FMIC said it is possible for the fixed-income market to exceed its record-high volume of P590 billion in 2017.