Right now, with the Philippine Stock Exchange index (PSEi) at 7,000, Philippine shares are trading at an average price to earnings ratio of 18 to 19 times, meaning investors are paying roughly 18 times what the company earns per share.
That is one of the most expensive in the region.
Credit Suisse said many investors are waiting for the price-earnings (PE) ratio to fall to 15 times and below.
"You can achieve that drop two ways, either through a price correction or through improved corporate earnings. The one theme over the next six months for the Philippines, I think, and this is where you are going to get positive surprises, is in corporate earnings, whether it be through consumer companies, because I think domestic consumption will remain strong, or through companies that benefit from these low commodity prices," said Robert Parker, senior advisor for investment strategy and research at Credit Suisse.
A local broker estimates the PSEi would need to fall 1,400 points to get to a 15 price earnings ratio--a 20 percent drop.
Counting on rising earnings may be difficult because earnings growth has been mostly disappointing.
COL Financial says two-fifths of the 56 listed companies it covers reported weaker than expected profit in the first half.
Meanwhile, a Philippine broker said the fall in PE doesn't have to be so big, estimating a PE of 16 to 17 would already be attractive. -- ANC
source: www.abs-cbnnews.com
