Banco de Oro Unibank Inc., which runs two of the five best-performing Philippine funds, is buying infrastructure stocks on optimism record-low borrowing costs will spur spending in the industry.
Banco de Oro is buying DMCI Holdings Inc., the nation’s biggest construction company, and Metro Pacific Investments Corp., owner of the longest tollroad, Marvin Fausto, the bank’s chief investment officer, said today. The Manila-based company is also buying Alliance Global Group Inc. and Ayala Land Inc. on expectations consumer and property stocks will beat the benchmark index in the next 12 months, Fausto said.
The Philippine Stock Exchange Index has retreated 4.3 percent from the record high of 4,397.3 on Nov. 4, after almost tripling since October 2008 amid a recovery from the global financial crisis. The rally will resume and drive the gauge to 4,800 in 12 months as benign inflation keeps interest rates at a record-low for at least a year, Fausto said. The exchange’s Property Index has 46 percent this year, outpacing a 38 climb for the benchmark index.
“Equities have become more attractive,” Fausto, who helps manage $13 billion at Banco de Oro, said in an interview. “The low-borrowing-cost environment favors infrastructure, consumer and property companies. We have been adding to these sectors.”
Fausto’s BDO Institutional Equity Fund has returned 152 percent over the past five years, while his BDO Equity Fund has returned 131 percent. The gains rank the funds fourth and fifth among 22 focused on and domiciled in the Philippines, according to data compiled by Bloomberg.
Shares of DMCI, which has investments in energy, may gain as much as 15 percent in the next 12 months and Metro Pacific, which controls a water utility, may gain 40 percent, based on analysts estimates compiled by Bloomberg data. Alliance Global, owner of the largest casino and the local franchise of McDonald’s, may rise 15 percent, while Ayala Land, the nation’s biggest builder, may advance 51 percent.
The index’s 15.3 price-earnings ratio makes the market less expensive than neighboring Indonesia’s 18.5 multiple and Malaysia’s 16. The Philippine multiple may drop as earnings forecasts are likely to be upgraded, Fausto said. Among other Asian emerging markets, Thailand is cheaper at 14.4 times estimated earnings, and Vietnam is at 9.2.
Still, the Philippines is among the three most expensive markets in Asia excluding Japan based on a price-to-book ratio of 2.7, Citigroup Inc. analysts including Markus Rosgen wrote in a report Dec. 3. North Asia is attractively valued and will outpace Southeast Asia’s gains in 2011, the analysts said.
Economic growth in the Philippines will exceed the 5 percent to 6 percent target for 2010 even after moderating in the second half, Economic Planning Secretary Cayetano Paderanga said Nov. 25. The economy grew 6.5 percent in the third quarter, following an 8.2 percent expansion in the three months to June, as the central bank kept its benchmark overnight rate at 4 percent for more than a year.
Inflation remains “manageable” within the targeted range of 4 percent to 5 percent, Fausto said. “There’s no risk in terms of cost pressure,” he said. Low interest rates will spur consumer spending, demand for homes and attract investment to infrastructure projects promoted by the government to stimulate economic growth, he said.
The government is lobbying private companies and funds to finance more than 700 billion pesos ($16 billion) of infrastructure projects including roads to bridges, the National Economic Development Authority said in September. The investments will help boost growth to as much as 8 percent a year from 2011, Finance Secretary Cesar Purisima said in July.
“Once these infrastructure investments start coming in you’d expect upgrades in earnings and big names to bid for key projects,” Fausto said. “Consumer spending and property demand will also gain as these investments create jobs and drive economic expansion.”
The Philippine index has rebounded 6.8 percent this month from a 7.4 percent tumble in November, the worst month since October 2008, when concern that Europe’s debt crisis will spread and China will raise interest rates prompted withdrawals from emerging markets.
Philippine equities have gained since the yield on the benchmark 91-day treasury bill fell to a record on Nov. 30, driving funds to higher-yielding equities, Fausto said.