by Gus Cosio:
I think the sell off yesterday was overdone. Of course, the prevailing notion is that the Philippine market has become expensive and valuations are stretched. My thinking is that the earnings momentum may have just started. We haven't seen GDP growth this strong in a lifetime - at least in my lifetime. If you breakdown what the growth drivers were, they were construction and manufacturing. Construction was up 33% YoY, from 4Q12’s 30%. Private construction grew 31% while public construction surged 46%due to infrastructure spending by government without the any public-private partnership (PPP) projects yet coming on stream. Manufacturing was a bright spot growing 9.7% YoY.
These are the badly needed growth sectors that have lagged the growth of consumer spending. These sectors are catching up which tells me that economic activity is gaining breadth. If that is happening, corporate earnings growth normally behaves in a more leveraged manner, meaning that it can grow at a multiple of GDP. The way I see it, P/E compression is underway and stock prices are pretty fairly valued where they are today. I think the risk we face today is not so much that we could lose money, but that we could miss the upside opportunity.
Good day to all!
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