One of the main reasons why we are optimistic about 2012 is the significant difference between how we are starting 2011 and 2012. In 2011, we entered the year with a lot of challenges. Corporate earnings were coming from a high base in 2010 making year-on-year comparisons difficult. For example, in 2010, consumer companies posted record profits as they enjoyed both strong demand resulting from election spending and low raw material costs. Meanwhile, power companies benefited from significant increases in spot market prices in 2010 brought about by strong power demand and favorable weather conditions. During the start of 2011, there was also the threat of rising inflation as commodity prices increased. Interest rates were also expected to move higher as central banks exited from their highly accommodative monetary policy. Finally, investor sentiment during the start of 2011 was very positive as the local market went up by 38% in 2010.


In contrast, we are starting 2012 with conditions considered to be highly favorable for the stock market. Corporate earnings are expected to recover in 2012, given the low base in 2011. Corporate earnings should also benefit from falling inflation and weak commodity prices as the said factors should boost end user demand and reduce margin pressure. Interest rates are also expected to drop due to expectations of lower inflation and the strong possibility of a ratings upgrade. Finally, market sentiment is very negative. These factors should be good for the stock market!


The first five stocks we chose are expected to be major beneficiaries of rapid economic growth and are trading at attractive valuations. For example, the launch of more PPP projects should benefit companies such as MPI and AC which are expected to be among the major bidders of projects. Banks such as MBT should also benefit from higher demand for loans. AGI should likewise benefit given the government’s focus on growing tourism in the country. Meanwhile, higher economic growth should lead to stronger demand for housing, benefiting property companies such as ALI.


Also included a few stocks with high dividend yields (>3%), and low downside risk to earnings, although they have a more conservative earnings growth outlook. Stocks that fit this description include BPI, RLC, and MWC. Investors who are more risk averse may choose to increase their exposure in these high dividend yielding stocks.

Include EDC. Although we have a neutral view on the power sector, EDC is expected to deliver rapid earnings growth in 2012 since one of its power plants will make its first full year contribution next year. Valuations are also compelling. – COL

The final day of the week will determine whether or not the bullish trend will still last, given that in terms of intraday numbers, the PSE index seems to be resisting further movement upward closer to the 1-year highest resistance point of 4,550 points. A breakout is still possible, of course, given the (comparatively) positive economic numbers of late 2011 versus world markets and the additional projects lined up by the Philippine government. But with some market signals indicating a possible market correction within the coming days (RSI going above the oversold level above 70) it might be a good time to consider pocketing some gains tomorrow, especially with closely-moving and bullish issues (which is, of course, subject to their own fundamental and technical circumstances). -PhilStock