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Corporate earnings seen to drive market growth

CEBU, Philippines — The Philippine stock market remains bullish of corporate earnings growth this year, partly to drive the market higher.

Alvin Arogo, advisor to the board of Unicapital Securities Inc., said yesterday the benchmark Philippine Stock Exchange index (PSEi) may exceed the 8,100-level as the market still expects earnings to grow 20 percent this year.

"The PSEi is currently trading near, and might slightly exceed, the 8,100 level as the market is still expecting earnings to grow by almost 20 percent this year," he told The FREEMAN on Wednesday.

"However, based on the actual earnings growth of benchmark companies so far this year, we think earnings will only grow by 6 to 8%," said Arogo, former equity research head at Credit Suisse Philippines.

He further explained that slower-than-expected earnings might consequently affect how the market performs in the next few months.

"We believe that the possibility of a slower than expected earnings growth will be more apparent to investors in the next few months," Arogo said.

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"Consequently, the PSEi is more likely to trade longer at below the 8,000 level," the analyst further added.

The PSEi touched the 8,100 level before the market recess at noon yesterday.

And it went back trading at above 8,000.

Amid the lack of fresh catalysts, local stocks are seen to continue to trade sideways.

FACTORS

In its mid-year market outlook, COL Financial cited the recovery of the global economy, the eventual passage of the tax reform program and the improving earnings were the factors that drove the market's performance in the first half of 2017.

Furthermore, COL said the market is cautious of certain factors such as the expected slower economic growth this year, higher inflation and interest rates, a weaker peso, painful short-term policies and a slower earnings growth.

COL advised investors that pullbacks are opportunities to accumulate stocks for a stronger 2018 and beyond.

It underscored that the passage of the tax reform bill will allow the Philippines to sustain faster long-term economic growth.

Year to date as of end July, the PSEi rose by 17.2 percent.

Sectors such as financial, property, consumer, gaming and telecommunications posted double-digit growth during the period. (FREEMAN)

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