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Philippine Stock Rally Unlikely to Last, Union Bank Says

Philippine stocks, which rallied to a six-week high yesterday, have a “very low” chance of sustaining their gains as Middle East turmoil pushes up oil prices, Union Bank of the Philippines’s Michael Garcia said.

“Nobody knows when the political unrest will end and as a tactical measure we have taken money off the table,” Garcia, who manages the nation’s best-performing stock fund in the past 12 months, said in a phone interview in Manila yesterday. “We quadrupled the proportion of cash we hold,” he said, declining to provide exact figures.

The Philippine Stock Exchange Index lost 1 percent as of 11 a.m. in Manila today, snapping a six-day climb that drove it to the highest level since Jan. 28 yesterday. The gauge is up 4.1 percent this month as companies from Banco de Oro Unibank Inc. to Ayala Land Inc. posted higher profits and investors speculated the central bank would take steps to curb inflation.

Stocks gained in March even as oil surged 6 percent in New York trading during the same period on concern escalating violence in Libya will disrupt supplies. Crude settled on March 7 at $105.44 a barrel, the highest level since September 2008.

The Philippines is one of the world’s “main losers” from rising crude prices because the country produces little or no oil, Citigroup Inc. analysts Geoffrey Dennis and Jason Press wrote Feb. 28. Oil’s ascent raises the import bills of many Asian countries, shrinking their trade surpluses and lifting demand for U.S. dollars to pay for the fuel.

Stock Value

“The probability of a sustained rally amidst this uncertainty is very low while the probability of a significant market dip on the back of an oil price shock is increasing,” said Garcia, who helps manage $700 million at Manila-based Union Bank.

This month’s gains drove valuations of stocks in the Philippine index yesterday to 12.8 times estimated profit, the highest level in more than a month. Garcia said the market presents an “opportunity for good returns” when the price-to-earnings multiple is at 10.

Garcia predicted Sept. 22 the benchmark equity gauge would rise to new highs because valuations at 15.3 times estimated earnings were “undemanding.” The index climbed a further 8.5 percent to reach a peak of 4,397.3 on Nov. 4, before tumbling 15 percent to last month’s low on Feb. 24.

The stock gauge sank 10 percent in the first two months of 2011 as the central bank didn’t join its Southeast Asian counterparts in raising borrowing costs. Bangko Sentral ng Pilipinas Governor Amando Tetangco, who has kept the nation’s interest rate at 4 percent for more than a year, said March 4 that February’s inflation rate of 4.3 percent supports the view that “the scope for keeping rates steady has narrowed.”

‘Behind the Curve’

“The central bank’s pronouncements were a welcome development because investors have been afraid it’s behind the curve in containing inflation,” Alex Pomento, strategist at Manila unit of Macquarie Group Ltd., said by phone yesterday. Investors also realized that the equity sell-down in January and February was overdone, he said.

Pomento maintained his forecast for the Philippine stock index to rise to 5,000 in the next 12 months. That’s a 26 percent advance from yesterday’s close of 3,959.94.

Union Bank’s Garcia said he owns shares of companies with stable cashflow and that enjoy “robust demand,” including utilities.

The fund manager’s UBP Large Capitalization Philippine Equity Portfolio has returned 81 percent in the past year, the most among Philippine stock funds tracked by Bloomberg and triple the equity gauge’s 27 percent advance. The fund has declined 5.4 percent this year, compared with a 5.7 percent loss for the benchmark index.

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