Investors are pouring record amounts of money into Philippine stocks, a sign of growing confidence in President Benigno Aquino’s plan to boost economic growth to a level that may exceed China’s expansion.
Foreign investors bought $1.1 billion of Philippine shares in the past two months, the most since Bloomberg began tracking the data in 1999. The Philippine Stock Exchange Index rose 9.2 percent in the period, the most among benchmark equity gauges in emerging markets, and closed at an all-time high yesterday.
Aquino, 51, is boosting government spending to a record this year as he seeks to spur the $200 billion economy’s growth rate to as fast as 8 percent from about 5 percent last year. While Bank of the Philippine Islands, the nation’s top-performing equity fund manager, says the rally will continue as falling interest rates boost earnings and infrastructure spending accelerates, Manulife Asset Management says the most expensive valuations since 2004 will limit gains.
“The story of the Philippines is that it’s getting re-rated by the market for its resilient, domestic driven economy,” said Paul Joseph Garcia, who helps manage about $15.3 billion at Manila-based Bank of the Philippine Islands. “Consumer spending will grow at a healthy clip this year on the back of aggressive government pump priming.”
The Southeast Asian nation is pursuing faster growth just as China, the biggest emerging economy, tempers its expansion goals and India struggles to maintain economic momentum. China has set a 7 percent growth target in its five-year plan that runs through 2015, down from more than 9 percent last year. Indian Prime Minister Manmohan Singh said this month that his nation’s gross domestic product will rise about 7 percent in the year ending March 31, less than the 7.5 percent rate he forecast in December.
The Philippine stock index is valued at 17 times earnings, or 39 percent higher than the Shanghai Composite Index, the widest gap in nine years, according to monthly data compiled by Bloomberg. The Philippine gauge trades at an 11 percent premium to the BSE India Sensitive Index, the biggest since February 2009, the data show.
The Philippine stock measure gained 1 percent today to a record 4,747.90. The country’s currency, the peso, rose 0.5 percent, while the yield on the government’s 7.125 percent notes due November 2013 fell 14 basis points to 2.65 percent. The central bank lowered yesterday its benchmark interest rate by 25 basis points, or 0.25 percentage point, to 4.25 percent, matching the median forecast in a Bloomberg survey of economists.
Domestic spending will probably support economic growth as overseas demand weakens, Amando Tetangco, governor of Bangko Sentral ng Pilipinas, said in a statement yesterday.
“This is a very stable economy,” Stephen Corry, the Hong Kong-based chief investment strategist at LGT Group, which oversees about $12 billion of client assets in Asia, said by telephone yesterday. “Valuations in the equity market are high relative to the rest of the region but there is still potential for growth there, particularly in regards to infrastructure.”
Aquino unveiled a 72 billion-peso ($1.7 billion) stimulus package of public works and poverty reduction projects in October to bolster growth. Property and construction stocks have climbed during the past two months on speculation Aquino’s program will boost profits.
Vista Land, Ayala
Vista Land & Lifescapes Inc., a Manila-based homebuilder, advanced 9.3 percent after the government named Ayala Corp. as the preferred bidder for a road project on Dec. 15, the first development to be awarded under Aquino’s program.
Vista Land plans to build houses and commercial buildings on more than 500 hectares of land it owns near the road. The shares climbed 1 percent yesterday and trade for 6.4 times estimated 2012 earnings, according to the average of six analyst projections compiled by Bloomberg.
“We have had the land for years and this road project will certainly enhance the value,” Ricardo Tan, a vice president at Vista Land, said by phone on Jan. 17. “This will make life easier for us to attract partners and customers for the development.”
The government said on Jan. 3 it may offer eight to 16 infrastructure projects to investors worth up to $3.2 billion this year. Ayala and Metro Pacific Tollways Corp. are among companies that have expressed interest in the projects, according to Cosette Canilao, executive director of the program.
Aquino Is Bullish
Manila-based Ayala, which owns the nation’s largest building company, has climbed 16 percent in the past two months and trades for 17 times estimated profit. Metro Pacific Investments Corp., the Manila-based parent of Metro Pacific Tollways, gained 7.4 percent and is valued at 14 times earnings projections, according to data compiled by Bloomberg.
“We are eagerly waiting for the projects to come on stream,” Jose Lim, president at Metro Pacific, said in a phone interview yesterday. “Certainly we intend to participate in these projects and at the moment Metro Pacific has made unsolicited proposals for several projects.”
Aquino said in a Jan. 11 speech in Manila that the stock market may extend gains because the country has become “more economically stable” and businesses are “more profitable.” Earnings in the Philippines index may climb 20 percent in the next 12 months, compared with the 14 percent gain forecast for the MSCI emerging markets index, according to analyst projections compiled by Bloomberg.
Stocks in the Philippines and other Southeast Asian countries may lag behind other Asian markets this year because their valuations are “not cheap”, Linda Csellak, the Hong Kong-based head of Asia Pacific equities at Manulife Asset Management, said in a Jan. 17 interview. Csellak said her firm is buying shares in China and India on expectations their central banks will ease monetary policy as inflation slows.
The last time Philippine stock purchases by foreign investors approached current levels was in July 2007, just as the Philippine stock index entered a bear market, data compiled by Bloomberg show.
A potential credit-rating upgrade by S&P will spur further gains in stocks, according to Rico Gomez, a money manager at Manila-based Rizal Commercial Banking Corp.
The ratings company raised its outlook on the country’s long-term foreign-currency rating Dec. 16, citing “strong external liquidity and signs of improving growth prospects.” The Philippines is rated BB, or two levels below investment grade. The government is hoping for an upgrade in the next two to three months, Budget Secretary Butch Abad said on Jan. 13.
“A ratings upgrade will allow investors to re-rate the market,” said Gomez, who helps manage about $1.5 billion and favors infrastructure and property stocks. “That could push the index to go beyond 5,000 within the year and sustain valuations.”