Bullish outlook on equities in first quarter

Bullish outlook on equities in first quarter
Mon Jan 09,2006
Manila Bulletin
http://www.mb.com.ph/BSNS2006010953474.html#

Stock brokers are bullish on the equities market in the near term particularly in the first quarter of the year with the increase in the value-added tax rate to 12 percent that would result to an upgrade in the country’s credit standing.

Other positive factors are the local currency’s strength, interest rates dropping, oil prices flat, the possibility that the Federal Reserve will end of its rate hikes, corporate profitability and strong balance sheets, says AB Capital Securities.

"But more than any other factor, it is the fiscal situation that makes or breaks the market in 2006. The economic and market outlook will also remain positive so long as the political situation does not turn ugly."

While majority of strategists are bullish on stocks, AB Capital Securities expects the economy to slow down in 2006 due to higher taxes.

"This should help keep domestic interest rates low this year. In terms of sectors, we would like the banking, property and utilities sectors. We believe that the banking and property stocks should fare well in an environment where interest rates are likely to go down," says AB Capital.

The banking stocks will also be riding again on the merger and acquisition theme after Banco De Oro’s (BDO) merger offer with Equitable-PCI Bank (EPCI) last week.

Utilities should also attract some interest as the upcoming First GeN IPO may result to a revaluation of the sector.

Among the specific stocks that AB Capital Securities like Security Banking Corp. (SECB), the Bank of the Philippine Islands (BPI), First Philippine Holdings (FPH), Petron Corporation (PCOR) and Megaworld Corporation (MEG).

Broker Nestor Aguila noted that Asian stocks fell due to the drop in oil, copper and gold prices.

Metrobank forecasts a 10 increase in loan demand, while the toll road operator First Philippine Infrastructure Development Corp. which is 70 percent held by First Philippine Holdings plans to go public rather than selling its stake to Metro Pacific Corp.

"Ther First Gen IPO should be interesting if it is offered at a discount of First Philippine Holdings’ trade price currently at 6.6 to 7.7 X price-earnings (PE) ratio," says Aguiila.

Last week, the composite index rose 37.75 points or 1.80 percent on expectations of better earnings in the fourth quarter of 2005 and 2006 and better fiscal performance last year.

BPI Securities says investors may be building up its positions due to the positive outlook for corporate earnings in 2005 and 2006.

Investors may also be anticipating the hike in VAT rate from 10 to 12 percent. The drop in 91day T-bill interest rates below 5 percent and the warm international response to the US.1 billion bond offer also helped buoy market sentiment.

Also, inflation in December slowed to 6.6 percent, the slowest annual gain in about one and half years, from 7.1 percent in November.

However, profit taking limited the market’s gains after the market rose 2.6 percent from the start of the year.

Leading the market higher were Globe Telecom, Ayala Corp., Equitable PCI Bank, First Phil Holdings, Metrobank, Banco de Oro, SM Investments, Meralco A & B, BPI, ICTSI, Ayala Land, Manila Water, ABS-CBN, Megaworld Corp., Aboitiz Equity Ventures, Piltel, Petron Corp., and Digitel.

The Ayala group led gainers. Ayala Corp. was up P15, Globe Telecom added P20, Ayala Land rose P0.35, Manila Water gained P0.30 and BPI inched up P0.50.

Equitable PCI Bank rose P4 and Banco de Oro gained P1.50 as investors priced in speculations of a merger.

The Lopez group also ended higher. First Phil Holdings was up P3.50 in anticipation that it will benefit from the IPO of First Gen. Benpres Corp also rose P0.08. Meralco-A A inched up P0.25 while the Meralco-B shares rose P0.50.

The few losers were PLDT and San Miguel A&B. PLDT shed P15 on profit- taking as investors await the announcement on the investment decision of NTT DoCoMo in PLDT.