CAL Head of Research Trisha Peries
CAL Head of Research Trisha Peries predicted that the All Share Price Index (ASPI) would hit 13,000 levels by the end of the year. (ASPI closed on 11 August at 11,596.16.)
She said, “I think we can easily see the market hitting even 13,000 levels by the end of the year. Even at those levels, we’d still only be trading at eight to nine times earnings.”
This positive sentiment is expected due to strong performance in the banking sector and broader finance cost reductions. The burden on corporate profits will shift as these cost reductions impact bottom lines. Corporate earnings are predicted to show signs of recovery in the second half, with the June quarter potentially subdued, but improvements are projected for the third and fourth quarters.
Peries was speaking as part of an Echelon panel released recently as part of their ‘equity strategy during an economic rebound.’
Peries said that economic improvements, including lower inflation and a stronger currency, have outperformed predictions. The central bank is cutting interest rates faster than expected due to these positive changes.
The country’s budget is getting tighter while monetary policy eases, creating an unusual opportunity for investors.
“The stock market’s growth will be more about improving stock values than big economic growth.”
Peries said, “Sentiment has changed, and risk is now off. Macro indicators have beat the positive expectations that we had, I mean interest rates coming down so sharply and fast is a big indication of that.”
Equity valuations are yet to rise in line with the increase of other asset prices. Peries said, “Most assets have already repriced, but we haven’t seen that happen in the equity market. All the banks have quite decent provisions. The large risk of external debt structure has been factored across most of the banks.” Private sector credit growth is expected to pick up.
First Capital Head of Research Dimantha Mathew has revised his GDP growth estimates upwards. Private consumption’s sharp decline led to an 11.8% Q1 GDP drop. However, a recovery is underway as Q2 marks a bottoming-out phase. Positive trends in inflation and interest rates, along with improved investor sentiment, are driving optimism.
Equities are expected to benefit from improving corporate earnings and economic reforms, with a positive trajectory predicted for the second half of the year. Mathew said, “We are looking at the GDP recovering towards the second half of the year and positive GDP growth to mostly come towards the fourth quarter.”
Mathew expects real wages to return to long-run averages over three years. He also noted that with low inflation and the systemic impacts of increased consumer demand, there would be an increase in purchasing power. (TP)
