THE Philippine Stock Exchange index (PSEi) is expected to end 2019 at the 8,600 level. — HANDOUT

LOCAL brokerage COL Financial Group, Inc. sees the Philippine Stock Exchange index (PSEi) testing the 9,100 level in 2020, banking on the double-digit growth of index firms this year.

COL Financial Chief Equity Strategist April Lynn C. Lee-Tan said they are keeping the 8,600 year-end target for the PSEi this year. The company, however, raised its target for earnings of PSEi firms to 13%, against its 11% estimate at the start of the year, citing the strong growth of banks and property companies.

“It’s really the property sector, still because of the strength of both the residential and office leasing. Banks will have a strong recovery this year. Lending is still okay, healthy loan growth but not in the same pace,” Ms. Tan said in a media briefing in Pasig City on Monday. Companies that comprise the PSEi are seen to post slower growth at nine percent in 2020.

“So if we were to keep a 17x PE (price to earnings ratio), or let’s say we hit 8,600 for the year and plus nine percent, I think we will hit 9,100 by then,” Ms. Tan said.

Ms. Tan explained that the lower earnings growth forecast in 2020 is mainly due to Manila Electric Co. (Meralco), whose earnings are seen to drop should it be ordered to adjust distribution rates.

“The main drag to 2020 is Meralco, potentially if they will be asked to adjust the rates lower,” Ms. Tan said, citing the distribution rate adjustments required of Meralco to reflect inflation and interest rates.

“We are assuming next year they will be asked, but again that may be delayed. If that is delayed then we may see earnings pick up.”

Meanwhile, the company noted that the factors that affected sentiment in 2018 have now been reversed, such as decelerating inflation, lower interest rates, stronger peso, and foreign fund inflows.

However, it still expects the market to be volatile due to external factors.

“The global economic outlook remains poor. Although central banks are loosening their monetary policies, it remains uncertain if they will succeed in addressing economic growth concerns,” Ms. Tan said.

Ms. Tan also cited the country’s current account deficit, which could be blamed for the weak peso in 2018, and the MSCI Emerging Markets (EM) index rebalancing in August and November.

The MSCI EM index previously announced that it will increase the weighting of China and Saudi Arabia, which could prompt fund managers tracking the index to divert their funds away from the Philippines.

COL Financial’s top stock picks include Ayala Land, Inc., Megaworld Corp., Filinvest Land, Inc., Metropolitan Bank & Trust Co., Security Bank Corp., D&L Industries, Inc., SSI Group, Inc., Max’s Group, Inc., Century Pacific Foods, Inc., and Ayala Corp. — Arra B. Francia