PHL ability to sustain stock market rally depends on continuity of reforms after 2016 –expert

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MANILA — The Philippine 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, said a financial expert.

“I think it does (matters who wins next year’s elections) because 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 towards 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 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,” he added.

Moreover, Oyson expects the local market sustaining its gains in the second half of 2015, and further rally towards 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 further said.