from COLing the Shots, COLFINANCIAL PHILIPPINES (22 Mar 2018):
"... if you are a long-term investor, resist the temptation to sell purely based
on emotions. Even with the short-term challenges that the country is facing, we would like
to assure you that the positive long-term outlook of the Philippine economy and the stock
market remains intact due to the following reasons:
1. The Philippines continues to enjoy favorable demographics, resilient OFW remittances,
and a growing BPO sector. In fact, for the month of January, OFW remittances grew by
9.7% to US$2.4 Bil, much faster than consensus growth forecast of 5.0%. The passage of
the tax reform program recently will also allow the government to increase spending
on infrastructure and social services, helping further boost productivity and economic
growth.
2. The execution of the tax reform program has been very good so far, with the
Department of Finance (DoF) disclosing that excise tax collections in January reached
Php22.1 Bil, up 81.7% y/y and above the Php20.5 Bil target. The DoF also disclosed that
the total tax collection of the Bureau of Internal Revenue (BIR) for the first two months of
the year grew 10.8% to Php280.6 Bil. Higher revenues reduce the risk that the government
will not be able to execute on its plan of spending more on infrastructure projects and
social services.
3. Despite rising inflation, most consumer companies we have talked to said that sales
during the first few months of the year have been very good. Possible factors boosting
consumer spending include higher disposable income due to personal income tax cuts
(resulting from the passage of the tax reform program) and the favorable impact of the
weaker peso on families dependent on OFW remittances.
In fact, if you are underinvested, we would like to reiterate that the ongoing correction is
a good opportunity to increase your investment in the stock market. In our COLing the
Shots report last month, we said there is a possibility that the ongoing correction will bottom
at its current level of 7,900 to 8,100. This is based on the median drop of the seven major
corrections that took place during the past 30 years. Moreover, 7,900 to 8,100 is a good level
to start accumulating stocks fundamentally speaking as the PSEi would be trading at ~17.5X
2018E P/E. This is already slightly below its 5-year historical average P/E of 18X.
However, nobody knows for sure if the market will bottom at the said level. According to
COL’s Chief Market Technician Juanis Barredo, after breaking 8,092, the PSEi’s next support is
7,788. Moreover, there have been times in the past when corrections have been as deep as
17% (implying a possible bottom of 7,500). Consequently, you may consider scaling in your
purchases. For example, you can choose to buy stocks weekly from March to June, at any
level below 8,100. This way, you can improve your average buying price assuming that prices
continue to drop."
