The Philippine stock market’s gains this year makes it second best performing bourse in Southeast Asia next only to Indonesia which posted a growth of more than 16 percent.

PCCI Securities president Francisco Liboro said the year was characterized by mixed emotions, with positive developments spurring mild rallies which later get pulled back down by disappointments and negative sentiments.

He said share prices started the year of the rooster on a strong note, with the mining sector crowing about its prospects after the industry was made more open to foreign investors by a Supreme Court decision.

The Philippine Stock Exchange also eased its listing rules for mining firms, to encourage more to go public.

Liboro noted though that the mining sector eventually disappointed investors, and nothing much has been heard from the industry since then. Thus, share prices of mining firms fell from the peaks reached in the first quarter.

First Grade Holdings Managing Director Astro Del Castillo added that the passage of the reformed value added tax law also boosted sentiments then. Also boosting sentiments were the passage of other revenue measures such as the hike in sin taxes and the Lateral Attrition Law.

He said these developments caught the attention of foreign players and placed The Philippine stock market back on the radar screen of foreign investors.

Highlighting the first quarter were the initial public offering of Manila Water Company, which raised P4.8 billion, and the massive P28.7 billion maiden offer of SM Investments Corporation.

However, things turned bad in the second quarter after the validity of the RVAT law was challenged and political noise grew after the President was beset with allegations of electoral fraud while her family accused of having alleged links to illegal gambling.

In the third quarter, everything went from bad to worse, following the filing of an impeachment complaint against the President and the oil crisis began with crude prices surging to a barrel following severe damage to US oil facilities hit by a series of hurricanes.

Liboro said the market lost all of its previous gains by July because of the political uncertainty and questions on whether government can stick to its fiscal targets with the implementation of the RVAT law still suspended.

Del Castillo said things started to improve in the last quarter after the President survived what was seen as the biggest threat to her tenure and after the Supreme Court finally ruled in favor of the validity of the RVAT law.

The market started to post strong gains after the successful implementation of the expanded VAT. Also contributing to gains were the strength of the peso, relatively low interest rates and sustained earnings of listed firms.

Liboro said that if government pulls its act together next year, the market will be ripe for a bull run. He said the Phisix will easily reach the 2,200 level early next year with the longer target at 2,400 for 2006.

Del Castillo noted though that there remains many threats to this anticipated rally such as a renewed hike in oil prices and if political noise grows louder again and another impeachment complaint is filed agains President Arroyo after the lapse of the one year moratorium.

Both Liboro and Del Castillo said a crucial gauge for government’s focus on the economy is if it gets to raise the VAT rate to 12 percent from the current 10 percent despite its being unpopular.

They said investors will also be closely watching if government can actually raise more revenues and hit its targets after being given all the revenue generating measures it had asked for.