MANILA, Philippines—Optimism about the new Aquino administration and about robust economic growth has allowed the bulls to chase the bears out of the local equities market, catapulting stock prices to unprecedented heights.
The main Philippine Stock Exchange index (PSEi), a barometer of investor confidence in the local economy, Thursday closed past 4,000 for the first time.
This upswing is widely expected by market analysts to continue toward 4,700 to as high as 5,300 through next year.
“We’re exiting the recovery phase and entering the
bullmarket phase,” April Lee-Tan, head of research at online stock brokerage CitisecOnline, Thursday said at a Philippine National Bank (PNB)
investors briefing.
Foreign funds have started to trickle back to the local market since November, she said.
But even at much-improved levels these days, the numbers are still only a third of how much they used to be, suggesting that equities have more room to climb given the favorable economic outlook and upbeat prospects on the Aquino administration, Tan said.
Moreover, Tan said stocks were still attractively priced relative to the earnings prospects of publicly listed corporations.
“We are at what we call the sweet spot. The stars have aligned,” Eduardo Banaag, vice president for investment at First Metro Investment Corp., said in an interview.
Banaag said the current market bullishness was of a different nature. “We’re on a surer footing,” he said, noting that the Philippines has only started an investment-led recovery.
Paul Joseph Garcia, chief executive officer at ING Investment Management, believes the local market has freed itself from the bearish cycle since last week when the PSEi exceeded the record highs last seen in 2007.
Garcia said the index may surge further to at least 4,700 through next year.
“There is rational exuberance in the market,” he said, noting that foreign funds were taking greater interest on the Philippine market, such as the likes of Fidelity Fund, China Investment Corp. and Government of Singapore Investment Corp.
“These are not hedge funds who come and go. These are the funds that stay for the long haul,” Garcia said.
Rafael Ayuste Jr., head of PNB’s trust banking group, said equities would likely outperform fixed-income instruments through at least through next year.
His group expected the index to rise further to 4,200 this year and toward 4,800 through next year.
“We have new dynamism in the economy,” Ayuste said.
New wealth
The PSEi gained 31.79 points or 0.8 percent to finish at 4,005.46 Thursday.
“Year to date, the
stock market has gained a total of 31.21 percent or 952.78 points. For the same period the stock market has also generated wealth worth P1.5 trillion in terms of domestic market capitalization,” said PSE president Val Antonio Suarez.
He said that the PSE continued to be invigorated by the bullish trends and that it was looking forward to new highs this year.
The main
stock index surged by 63 percent to 3,052.68 last year but this was only a recovery from the 48.3-percent decline in 2008, when the index ended at 1,872.85.
As the stock market hit record highs starting last week, daily value turnover improved to at least P6 billion to P8 billion, up from the average turnout of a little over P4 billion in the first semester.
While foreign funds were starting to flow back, the local market is also now supported by strong domestic investor participation.
Features of bull market
Tan said a bull market, which the Philippines would see through 2011, would have the following characteristics:
• Economic growth will pick up steam on the back of increasing wealth among domestic consumers, numerous investment opportunities and a strong
financial system;
• Stocks will trade at higher or more expensive levels;
The PSEi will test 5,300 as earnings per share will likely grow by 37.7 percent from the levels in 2007 when the market last rallied to record highs, while investors are expected to pay a higher price to buy stocks whose earnings potentials are expected to rise.
PE ratio of 13
Tan said the local stock market was trading at a price-earnings (PE) ratio of 13 times, which is not expensive relative to its PE ratio of 28 times during the Asian crisis.
A company trading on a PE ratio of 28 times means that buyers are paying 28 times the amount of money that the firm is making in a given year. A higher PE ratio means that investors believe that past earnings were modest compared with future prospects.
At present, however, Tan said local stocks may be expensive compared with how stocks in the region where traded, which means that the Philippine market—for all the euphoria—may still underperform in the short term.
But over the long term, she said valuations would rise in other markets and thus investors would appreciate good buys in the Philippine equities market.
“The new administration can be a catalyst for growth plus economic reform will lead to higher investor confidence,” she said.
First Metro’s Banaag said he was looking at 4,400 as the next potential target this year.
“I think the market is worth 4,400 in the first quarter. If we reach 4,400 in September, we should
consolidate and take profits first. That said, I think 4,400 is possible this year,” Banaag said.
Best-performing fund
First Metro Save and Learn Equity Fund, First Metro’s equity-based mutual fund, is currently the best performing mutual fund. Its year-to-date increase in net asset value per share is about 48 percent.
Return on First Metro stock fund’s over a three-year period is also the highest at 17.31 percent. Since the launch of this fund in October 2005, its net asset value has surged by 210 percent, outperforming the 101 percent PSEi rise over the same period. Compounded annual growth rate stands at 25.5 percent.
With the robust stock market, other equity-based mutual funds have also performed well. Over the past three years, the top performers and their average return were Philequity Fund Inc. (14 percent) and Philam Strategic Growth Fund Inc. (12 percent).
“The economy has traction. We’ve never depended on other countries for growth. This is all consumer spending,” Banaag said.
Bigger savings
While the government’s budget deficit remained a concern, Banaag said this was becoming less of a concern as private savings in the country were three times higher than the shortfall.
“The amount of cash available in the system is increasing faster than the deficit. So this deficit, while still a concern, is going to be much less relevant,” he said.
Banaag added that the country’s gross international reserves were growing faster and could soon overtake the entire foreign
debt stock of about $55 billion.
“This is a situation that we have not seen—that our reserves will be on a one-is-to-one ratio against foreign debt. I did not even imagine that it will happen in my lifetime,” he said.
Record corporate earnings
Amid the backdrop of good corporate fundamentals, Banaag said corporate earnings would end at record levels for listed companies—in stark contrast to the woes in the United States and Europe.
“The magic is all in savings and investment,” he said.
By sector, Banaag said the property and conglomerates would likely continue to do well. He said the property sector would benefit from ample financial liquidity seeking investment outlets while the conglomerates were a proxy to the real economy.
Among the stocks in First Metro’s P1-billion equity fund were Aboitiz Power Corp., Metro Pacific Investments Corp., DMCI Holdings, Universal Robina Corp., Semirara Mining, Oriental Peninsula, Aboitiz Equity Ventures, Vista Land & Lifescapes and Sta. Lucia Land Inc.
“I think all stocks will do well. It’s the ‘outperformers’ that we’re looking for,” Banaag said.
Tan, for her part, said
banks would likely do well through 2011 as this sector was a play on investment and consumer spending.
Her top banking picks were Metropolitan Bank & Trust Co., Security Bank Corp. She said property stocks would also likely do well, identifying Megaworld Corp., Robinsons Land Corp., Filinvest Land and Ayala Land Inc. as the top picks.
Other stocks seen benefiting from a “growth” play through 2011, Tan said, were Manila Electric Co., Metro Pacific Investments, DMCI Holdings, International Container Terminal Services Inc. and Manila Water Co.
She added that EEI Corp., Energy Development Corp., First Gen Corp. and First Philippine Holdings would also likely benefit from higher earnings forecasts.
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Published in Philippine Daily Inquirer Sept. 17, 2010..
