The Philippines’ biggest fund managers are buying more consumer and property stocks as prospects for an investment-grade credit rating and lower borrowing costs drive the benchmark index to a record.
The Philippine Stock Exchange Index jumped 26 percent this year through yesterday’s close, driving valuations to 15.5 times estimated 2013 earnings, the most among 15 Asian-Pacific markets tracked by Bloomberg. The measure is trading at its biggest premium to the MSCI Emerging Markets Index since Aug. 3 as analysts predict a 12 percent increase in the Philippine gauge’s earnings in the next 12 months.
BPI Asset Management Inc.’s Paul Joseph Garcia is buying food and drink manufacturers as the slowest inflation rate in four months gives the central bank room to cut record-low borrowing costs to shelter the economy from the global slowdown. Metropolitan Bank & Trust Co.’s Allan Yu is investing in homebuilders and retailers amid expectations the Philippines will win an investment-grade credit rating as early as 2013.
“We have started to take positions for the coming year,” Garcia, who helps manage about $18.5 billion as senior vice president at BPI Asset, said by phone yesterday. “The Philippines is still expensive relative to other Asia-Pacific markets but that’s the premium you pay for earnings certainty.”
Garcia predicts the Philippine Stock Exchange Index may climb another 18 percent through 2013 to 6,500. The gauge could rise 5.4 percent to 5,800 by the end of this year, said Yu, who helps manage $10.3 billion at Metropolitan Bank, the nation’s second-biggest bank by assets. The measure rose 0.6 percent to 5,535.05 at 1:35 p.m. in Manila today, heading for a record close.
Bangko Sentral ng Pilipinas lowered its overnight borrowing rate for the fourth time this year on Oct. 25 after second-quarter economic growth slowed to 5.9 percent, from 6.3 percent in the previous three months. President Benigno Aquino is increasing spending and seeking more than $16 billion of investments in roads and airports to spur economic growth to as fast as 7 percent in 2013.
The Philippine stock index’s increase this year compares with a 13 percent climb by the MSCI Southeast Asia Index and the MSCI Emerging Markets Index’s 7.1 percent advance. The Southeast Asian measure trades for 14.1 times estimated profit, a 25 percent premium to the emerging-market gauge’s multiple of 11.3.
There is little room for further stock gains in the Philippines and other Southeast Asian nations because prices reflect the region’s earnings prospects, Sakthi Siva, a Credit Suisse Group AG strategist, wrote in a Nov. 7 note.
The 10 largest consumer stocks in the 268-member Philippine All-Share Index, including Universal Robina Corp. and Pepsi-Cola Products Philippines Inc., have climbed an average 70 percent this year amid prospects of increased consumption, which accounts for 74 percent of the economy. Growth in second-quarter consumer spending accelerated to 5.7 percent from 5.1 percent the previous three months, government data show.
The All-Share index’s five biggest consumer companies trade at an average 26 times reported profit, compared with the gauge’s 18.5 multiple. Manila-based Robina, the nation’s largest maker of snack foods, rose 63 percent this year and is valued at 20.2 times. Pepsi-Cola, based in Muntinlupa City, surged 171 percent and trades for 27 times.
“Consumer stocks have already gone up but the sector remains attractive,” said BPI Asset’s Garcia, who prefers retailers and gaming stocks. There is a “50 percent chance” the central bank may cut interest rates in the first half of 2013, spurring consumer spending, he said.
While lower borrowing costs have driven the Philippine Stock Exchange Property Index up by 42 percent this year, the gauge’s valuation of 18.6 times estimates for 2013 profit is at the narrowest premium to the Philippine Stock Exchange Index since May 11, weekly data compiled by Bloomberg show. Robinsons Land Corp., the nation’s second-largest mall operator has surged 70 percent this year, while Ayala Land Inc., the Philippines’ biggest developer, climbed 54 percent.
“The property sector should continue to be a preferred sector as low interest rates will perk up demand for real estate,” Metropolitan Bank’s Yu said by phone on Nov. 15. He favors home developers and builders with rental income.
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings raised their ratings on Philippine debt in the past 16 months as the government reduced its budget deficit from a record high in 2010. Moody’s lifted its rating to Ba1, one step below investment grade, on Oct. 29, saying the nation may reach that status if it continues its reforms and lowers debt.
Overseas investors bought a net $2.02 billion of Philippine shares this year, exceeding the record $1.35 billion posted in 2007, according to figures compiled by Bloomberg dating to 2000.
“Expectations the Philippines will achieve investment-grade status are supported by strong fundamentals,” Yu said. “This will drive more overseas funds into this market.”