Stock market investors should overcome fear of heights as steady global economic growth and sustainable corporate margins will continue to feed the bulls this year, investment strategists from British banking giant HSBC said.
For the Philippines, HSBC sees the Philippine Stock Exchange index (PSEi) rising by a “low teen” level this year on the back of an average growth of 11.5 percent in corporate earnings, mainly driven by consumer-related and banking stocks.
For Asian emerging markets, corporate earnings growth this year is projected at 13 percent versus a global growth average of 10 percent.
“After the strong rally in 2017, many investors worry about high valuations. But in our view, record-high equity index levels are not a good enough reason to stay on the sidelines. With global leading indicators continuing to surprise on the upside and corporate earnings momentum staying positive, we expect the equity bull market to continue in 2018. We anticipate global equities to outperform global credit this year,” said Willem Sels, chief market strategist at HSBC Private Bank.
Asian stock market valuations are “not seriously at risk,” according to HSBC, adding that investors would continue to buy on dips on expectations that positive economic and earnings cycle would continue through 2018 and likely beyond. But as the equity rally is entering a more mature stage, the house sees market volatility and return dispersion increasing in 2018.
“The tide may rise more slowly in 2018 than it did in 2017, however. Therefore, what investors buy and how they invest is likely to be increasingly important,” Sels said.
Asia excluding Japan is HSBC’s favorite region for equities, with an overweight allocation to China, India, Singapore and South Korea.
“We have a neutral view on Philippine equities as high remittances and strong investments support robust economic growth and steady earnings performance. This helps mitigate risk of the high valuations of the Philippine stock market,” HSBC managing director and head of Asia investment strategy and advisory Cheuk Wan Fan said.
To date, she said Philippine equities have become relatively expensive versus regional markets with investors now paying 19 times the kind of money they expect to make from this market versus 13 times projected earnings that they pay in regional markets.
“Looking at the upside potential, we expect the Philippine stock market to go in line with the earnings growth or double-digit returns for this year at the low-teen level,” Cheuk Wan said.
HSBC sees Asia gaining from China’s growth stabilization and economic transformation, with the combined effects of stronger capital spending, rising high-tech investment, Belt-and-Road initiative-driven infrastructure investment and green revolution seen to offset short-term headwinds from environmental regulations, slowing property construction and shrinking balance sheets of the shadow banking system.
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