Philippine stocks fell to a two-month low after bond yields jumped and concern grew that shares were expensive as valuations outpaced Asian rivals.
The Philippine Stock Exchange Index slumped 3.7 percent to 6,763.38 at the close in Manila, the lowest level since April 8. The measure is valued at 20 times this year’s estimated earnings, the highest among 15 Asia-Pacific markets, according to data compiled by Bloomberg. Its 10-day volatility, a measure of price swings, rose to the highest level since October 2011. The nation’s bond yields surged to the highest level in almost three months.
Global bond markets posted their biggest monthly losses in nine years in May as the U.S. dollar rallied and stocks reached record highs amid speculation a strengthening U.S. economy will allow the Federal Reserve to reduce its monetary stimulus.
“Bonds are getting attractive because yields are rising” on speculation that so-called quantitative easing will be tapered, Jerome Gonzalez, who helps manage $237 million at Philequity Management Inc., said in phone interview today from Manila. “That’s causing some funds to shift away from risk assets like commodities and equities, which are deemed expensive.”
The Philippine index has rallied 16 percent this year and closed at a record 7,392.20 on May 15 as economic growth accelerated, the peso strengthened and the nation won investment-grade credit ratings from Standard & Poor’s and Fitch Ratings. The index’s price-earnings ratio that day was at the highest since Bloomberg began tracking the data in 2006.
SM Prime Holdings Inc. (SMPH), the nation’s largest shopping mall developer, fell 6.4 percent, the most since November 2010, after the company said property assets and ventures of parent SM Investments Corp. will be consolidated with the company. SM Prime shares are still up 11 percent for the year.
“The market as a whole is consolidating along with bonds,” said Gonzalez.
The yield on the 6.125 percent bond due October 2037 rose 40 basis points, or 0.40 percentage point, to 4.75 percent, the highest level since March 8, according to Tradition Financial Services prices as of 3:51 p.m. in Manila. The rate rose the most since the notes were first sold in October.
The government’s borrowing costs from three months to a year rose for a second straight Treasury bill auction. The peso gained 0.5 percent to 42.055 per dollar at the close in Manila, it’s biggest increase since April 10, according to Tullett Prebon Plc. Fed Chairman Ben S. Bernanke said following Congressional testimony on May 22 that the central bank could consider reducing the amount of Treasuries and mortgage debt it buys within “the next few meetings” if officials see signs of sustained improvement in the labor market.
The Bureau of the Treasury may sell bonds targeting individuals in the second half as Bangko Sentral ng Pilipinas limited access to its special deposit accounts, BusinessWorld reported, citing Treasurer Rosalia de Leon. The Treasury will auction 20 billion pesos of notes due in three months to a year.
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