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Tuesday, April 29, 2014

TIPS | What are the 9 stocks to own in 2014, according to COL Financial?

The Philippine composite index is expected to finish a volatile year at the 6,600 to 6,900 levels despite continued fund outflows and a looming pick up in interest rates, according to online brokerage COL Financial Group Inc.

In a briefing today, COL Financial head of research April Lynn Tan said the targets are based on the assumption that 10-year bond rates will stay within the 5-5.5 percent band.

The projections represent an upside of 12-17 percent from the Philippine Stock Exchange index (PSEi)'s close of 5,889.83 in 2013.

Even as valuations seem expensive relative to historical average, equities remain the most attractive peso asset class with the prospects of higher interest rates already factored in, Tan said.

In contrast, the return of time deposits stood at 0.85 percent, special deposit accounts at two percent and 10-year Treasury bonds at 4.1 percent.

After a frantic performance in the first half of 2013 that pushed valuations to 21.2 times earnings -- the historical average is a price-earnings ratio of 15 -- the market has been on a correction mode, especially after the US Federal Reserve signaled in the middle of the year that it will start tapering its stimulus, a key driver of global asset rallies in recent years.

While valuations have yet to return to the historical norm, about 80-85 percent of the corrective intent has been priced in and the market may be bottoming out, Juanis G. Barredo, COL Financial chief technical analyst, said.

The Philippine stock market is undergoing a "very extended pause" but has managed to maintain the long-term bullish trend line that began in 2009 intact, Barredo said, adding that the sharp fund outflows from emerging markets will result in a wide consolidation range of 960 points between 5,500 and 6,460, consequently providing windows for range trading.

"The local market may be side-stripped for the meantime, but there will be standouts and good pockets of activity as deducted in year-to-date returns of about two percent...clearly higher than many other emerging markets that are expressly negative year-to-date," Barredo said.

The PSEi "shows a good chance" of rallying to the next resistance level of 6,200-6,400 in the short term, he said. Today, the PSEi stretched its winning run to a fifth session, closing at 6,106.03.

Emerging markets may have suffered the brunt of the selloff as a result of the "taper tantrums," but what sets the Philippines apart is its stronger fundamentals characterized by its growing current account surplus, Tan said.

Other positive developments that bode well for the country is the impact of the reconstruction spending in the wake of Typhoon 'Yolanda,' robust remittances and outsourcing revenues, recovery of exports, increasing foreign direct investment and the revival of the manufacturing sector, she added.

COL Financial recommends investors to accumulate shares of EEI, Megaworld, PLDT, D&L Industries, Ayala, BDO, Metrobank, Ayala Land and SM Prime.

While banks and property firms are the most sensitive to rising interest rates, valuations have become very attractive, Tan said.

Corporate earnings growth is expected to slow to 6.4 percent this year from 12-13 percent in 2013 dragged by the banks and their parent conglomerates.

"Given the favorable long term growth outlook of the economy, we believe that fundamentals will eventually catch up with valuation in 2015 assuming that the PSEi remains unchanged for the year," Tan said.

- Interaksyon

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