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Philippine Stocks Set to Surge by End-2011 After `Rerating,' JPMorgan Says
The Philippine’s benchmark stock index may rise 18 percent by the end of next year, according to JPMorgan Chase & Co., which cited lower risks and a “bright” earnings outlook for the nation’s companies.
The yield on the Philippine 10-year government bond has narrowed more than 200 basis points in the past four months, reflecting lower risks after the election of President Benigno Aquino, said JPMorgan analysts led by Gilbert Lopez. Second- quarter corporate earnings also suggest the brokerage’s forecast for profits to grow 18 percent on average in 2010 and 2011 may be “re-rated upwards,” according to the analysts.
JPMorgan has a December 2011 forecast of 4,550 for the Philippine Stock Exchange Index, a target that faces “upside risk,” according to the report. The gauge rose 1.1 percent to 3,847.68 as of 11:15 a.m. local time, extending the advance this year to 26 percent.
Even after this year’s gains, “the Philippines equity market is a consensus underweight,” the analysts said in a report yesterday. “The market, especially foreign equity investors, has not appreciated the country’s reduced risk profile.”
Philippine stocks are the third-best performers among the 12 largest Asian markets this year, lagging behind only Indonesia and Thailand. Still, more than half of the 46 emerging-market country fund managers tracked by EPFR Global, a Cambridge, Massachusetts-based research firm, have an “underweight” position in the country, according to the JPMorgan report.
‘Massive’ Bull Market
Economic expansion and earnings growth of 23 percent this year will push Philippine stocks into a “massive bull market,” Alex Pomento, a strategist at Macquarie Group Ltd., said on Sept. 6 in Manila. The benchmark index will reach 3,900 in the near term and extend gains to 4,500 in 2011, he said.
JPMorgan’s 2011 forecast implies a price-to-earnings multiple of about 15.5 times for the index, which is currently valued at about 15 times this year’s profits, the brokerage said. It initiated coverage of International Container Terminal Services Inc., with an “overweight” rating yesterday, citing growth in container volumes and contributions from three new ports. It also favors other companies that offer “strong growth amid relatively low valuations,” including Energy Development Corp., Manila Water Co. and Ayala Corp.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
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