Economic growth to pull cyclical sectors out of equities

Through Keren Concepcion G. Valmonte, Journalist

BPI SECURITIES Corp. expects the economy to recover before the end of the year, which could bode well for the equity market.

“Improving economic conditions should be supportive for Philippine equities as this should boost trading activity and essentially support earnings growth,” Angelo Antonio S. Torres, head of research at BPI Securities, said at a briefing. a webinar hosted by the Philippine Stock Exchange on Sunday.

BPI Securities said cyclical sectors, which include real estate, banks and parent companies, will benefit “from the improving macro backdrop and outperform earnings growth this year.”

Two conglomerate stock picks are Ayala Corp. and GT Capital Holdings, Inc. due to their exposure to all economic sectors as well as their “sound balance sheet positions”, which can support the recovery of their respective subsidiaries.

Other stock picks include BDO Unibank, Inc. for the bank, Universal Robina Corp. for consumers, International Container Terminal Services, Inc. for industry and Ayala Land, Inc. for real estate.

The others are: AREIT, Inc. and Filinvest REIT Corp. for real estate investment trust (REIT) issuances, Converge Information and Communications Technology Solutions, Inc. and Globe Telecom, Inc. for telecommunications, and AC Energy Corp. and Aboitiz Power Corp. .for utilities.

Banks’ net interest margins are expected to increase thanks to higher benchmark rates. Provisioning costs, which have increased due to the pandemic, are also expected to decline.

“We expect loan growth to accelerate to high numbers this year, but believe growth will be more skewed toward the second half as excess liquidity wanes,” Torres said.

Sectors expected to lead loan growth include manufacturing, telecommunications, real estate, utilities, as well as construction and transportation later this year.

Meanwhile, consumer names are expected to benefit from the continued growth of e-commerce and pent-up consumer demand, which could also benefit mall foot traffic. The increase in foot traffic will also help businesses that have lots of physical stores. BPI Securities expects restoration services to resume by early 2023.

Telecommunications problems, for their part, would articulate its growth dynamics with the increased demand for Internet connection in the context of the health crisis.

“Fiber will continue to drive industry growth,” Torres said. “It also helps to keep penetration rates in the country low. We believe remote productivity is here to stay, given that […] the hybrid work setup will continue and, therefore, will sue telecom carriers that offer this service. »

Further digital adaptation in the country, which includes mobile phones or e-wallets, would also help telecom players.

At the same time, for real estate, the demand for residential properties, particularly for the middle and upper class market, should boost the sector, in addition to a resilient office market. Listed office-focused REITs are also benefiting from business process outsourcing (BPO) locators and planned asset injections from their respective sponsors.

BPI Securities expects the economy to return to pre-pandemic levels by the third quarter of this year.

“We expect the high-contact sectors, namely: transport, food or restaurants, retail and leisure, to experience a strong recovery this year, particularly if mobility levels improve. “said Mr. Torres.

“We also expect capital spending to help boost GDP (gross domestic product) this year due to infra-related activities, while government consumption is also expected to rise partly due to the May election,” he said. -he adds.

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