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Gus ThumbnailEssentially, I think the market is cheap and fundamentally sound.  The foreign flows are not going our way, but judging from the outflows from foreign funds that we have seen from June when the tapering jitters started, foreign selling should be drying up soon.  This is because most of what they’ve bought over the past two years have been sold already.

After all these rebalancing has been done, we will inevitably see a new wave coming in.  This is because 2014 will be the year when we start the year as investment grade.  In spite of all the calamities that we’ve seen this year, there remains a lot of wealth in the system.  We are seeing more foreign direct investments in contrast to the negative growth of portfolio investments which will make our economy stronger and less reliant on OFW remittances in a few years.  We are also seeing a 32% increase in the government infrastructure budget not counting the reconstruction of the calamity hit areas.  If inclusive growth was elusive in the past, it will be partly captured in 2014.

Right now, the forecast of earnings growth is quite conservative of about 8 to 9 percent.  Given that the market has dropped so much, an 8 to 9 percent growth in the over-all market will be quite achievable in the backdrop of GDP growing at 6 to 7%.  Anyway, SALEF will close this year flat.  I expect Salef to gain at least 6 percent in 2014.  If we’re lucky and earnings growth goes to 9 percent, SALEF can grow by 10% or more.  Essentially, I’m strategizing for a 6 percent return on the conservative side in 2014 and 10 percent o the aggressive end for now.

I hope these thoughts are helpful.

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