The Philippine Stock Exchange (PSE) expects the stock market to improve next year although analysts are more wary about sustainability after share prices posted strong growth this year.

PSE president Francis Lim expressed optimism and said next year "will be much better" as corporate profits are "expected to increase between 10 to 20 percent" from earnings registered this year.

"Inflation is also seen to be subdued next year, benefiting companies," he said adding that "the Philippines is riding on the economic recovery of the region."

Lim also noted that the holding of the national elections next year could benefit companies.

"The IPO inquiry this year is also better than last year. I don't have the exact figure right now but it is definitely higher than last year," said Lim indicating that better earnings from company listings might be achieved next year.

However, analysts fear that the PSE benchmark will post either a slower growth in 2010 or possibly retreat lower as share prices overshoot the actual valuations of listed companies this year.

They note that the rather vigorous uptick in share price in 2007 has already factored in the recovery that was supposed to occur next year, leaving share prices to wait for the actual value to catch up or simply retreat to match a company's inherent value.

UBS Securities Philippines, Inc. said the PSE index (PSEi) could retrace to the 2,900 level because of this, while Citiseconline was more optimistic, giving the PSEi a chance to move higher by about 10 percent, but also said that a reversal of 10 percent is also possible.

Citiseconline president Conrado Bate said while the market can still go higher in 2010, driven by investor interest on listed companies, this hike will be "at a slower pace."

"The market could probably go range bound at a plus or minus 10 percent…because share prices had gone ahead of the economic recovery. The quality of the recovery of companies still has to improve to sustain the increase in share prices,” said Bate.