The Market Monitor Minding the Nation's Business
The local stock market can sustain its rally in the next few years, depending on the ability of the next leader to continue the Aquino administration’s reforms focusing on macroeconomic stability, a financial expert said.
“I think it does (matters who wins next year’s elections) because the perception of foreign investors is very important in keeping the high multiples of the Philippine (market). Keep in mind the market is trading at current multiples because of positive perception toward President Benigno S. Aquino III,” said Michaelangelo Oyson, managing director of Bank of the Philippine Islands (BPI) Securities, in an interview.
Oyson stressed that the positive foreign investor perception on the Philippine market is key to maintaining P/E (price to earnings) multiples in the 20 times level.
P/E ratio, an equity valuation multiple, is defined as market price per share divided by annual earnings per share.
Oyson cited a data showing that investors are willing to pay a higher P/E multiple for Philippine companies under the Aquino administration. “And part of that can be explained by investors imputing a lower risk premium to the Philippines because of perception from foreign investors that the government is promoting a clean government. That is very important for foreign investors,” he said.
Oyson said foreign investors also hope that the Philippine policies are strong enough that these will be carried on by the next administration.
He noted that macroeconomic factors are keys in sustaining the performance of the stock market, which is expected to regain the 7,800 level by year-end and breach the 8,000 mark by 2016.
The benchmark Philippine Stock Exchange (PSEi) has returned to the 7,600 level after a roller-coaster ride amid worries about the Greece’s debt crisis and China’s stock-market crash.
“Because what we want to see for the Philippines is a final takeoff so that it can be counted among in line with the economies such as Thailand and Malaysia which is three to five years of growth to be able to achieve higher GDP (gross domestic product) per capita,” Oyson said.
Moreover, Oyson expects the local market sustaining its gains in the second half of 2015, and further rally toward 7,800 by year-end.
“Historically, the Philippine market does very well prior to the elections. There is a lot of liquidity in the Philippine economy and generally, a lot of it flows to the stock market,” he said.
The PSE is also encouraging the entry of more small and medium enterprises (SMEs) into the stock market in a bid to also promote good governance. “We have to see the benefits of these things, not just because they need to raise money, but really the long-term benefits—the governance. SME is really a governance story,” said PSE chief operating officer Roel Refran.
Refran, who is also the chairman of the Capital Market Development Committee of the Philippine Chamber of Commerce and Industry (PCCI), said the country is continuously undertaking various initiatives to perk up the interest of SMEs to list on the local bourse.
He said they conduct small roundtable sessions and market education conferences for SMEs.
“The question always is: Do they need the funds? We tell them that if you don’t need the funds, for you to value your company, listing is the right way to go,” he said.
As it takes enough time for the SMEs to prepare for a public listing, Refran expressed hope that more SMEs would list on the bourse in two to three years.
“Right now, we have only four. My target is for that to be 10 hopefully in the next two to three years,” he said.
Meanwhile, the Capital Market Development Committee was organized by the PCCI and the PSE through a memorandum of understanding meant to promote efficient practices that would enable businesses, particularly SMEs, to consider raising funds through the capital markets for growth and expansion.