March 7 (Bloomberg) -- The second-biggest Philippine fund manager said the value of the stock market will exceed the size of the economy this year for the first time as low interest rates and faster economic growth spur a record equity rally.
The Philippine Stock Exchange Index may gain 29 percent this year to 7,500, boosting the value of the entire market, while gross domestic product in current prices may expand 9 percent, Paul Joseph Garcia, a fund manager at Manila-based BPI Asset Management Inc., said in a March 5 interview. His prediction means the economy would reach about $280 billion.
A 33 percent surge by the benchmark index last year drove the stock market’s value to $223 billion on Dec. 31, compared with the nation’s 2012 GDP of $257 billion, data compiled by Bloomberg show. Expectations the nation will win an investment-grade sovereign rating helped drive the value of Philippine stocks to a record $247 billion on Feb. 8.
“It’s just a matter of time for the market cap to overtake GDP given the level of interest from local and overseas investors,” said Garcia, who helps manage $19 billion at BPI Asset. “The market’s high multiple is a signal investors have high confidence that the economy will be better in the next 12 to 24 months.”
The Philippine stock index jumped 1.8 percent yesterday to a record 6,835.21. It fell 1.6 percent at the 3:30 p.m. close in Manila, the sharpest loss in eight months. The gauge has climbed 294 percent since October 2008 through March 5, making it the world’s biggest equity bull market. That’s at least 134 percentage points more than every other bull market in emerging and developed nations, data compiled by Bloomberg show.
Philippine GDP is forecast to grow at as much as 7 percent in real terms this year as President Benigno Aquino plans to boost spending to a record and seek more than $17 billion of infrastructure investments, Economic Planning Secretary Arsenio Balisacan said on Jan. 31. The economy grew 6.6 percent in 2012, after a 3.9 percent expansion in 2011.
The nation’s credit rating, at speculative grade, will probably be upgraded in the first half, central bank Governor Amando Tetangco said in a Bloomberg Television interview on Jan. 25. Standard & Poor’s raised its outlook to positive from stable on Dec. 20, citing the stability of Aquino’s administration and economic growth.
Foreign investors purchased a net $812 million of shares in Asia’s 12th-biggest stock market this year, 45 percent more than in the same period a year ago, according to Philippine Stock Exchange data compiled by Bloomberg. The nation of about 100 million people recorded $2.5 billion of inflows last year, the most since Bloomberg began tracking the data in 2000.
Marvin Fausto, the chief investment officer at BDO Unibank Inc., the nation’s biggest fund manager, says “elevated” share prices are a hurdle to the nation’s equity-market capitalization surpassing GDP this year.
“Maybe it will happen next year,” Fausto, who helps manage about $20 billion, said in an interview at an investor conference in the southern city of Samal on March 2. “I don’t expect the market cap to grow by another 10 percent from here. Share prices are approaching overvaluation. Earnings have to catch up with share prices and valuations to become reasonable.”
Surging demand for equities drove the Philippine Stock Exchange Index’s valuation last month to 21.7 times reported earnings, the highest level since December 2003 and a premium to the 15.2 multiple 10-year average, data compiled by Bloomberg show. The Philippine gauge now trades for 21.1 times reported earnings.
Earnings per share at companies in the Philippine Stock Exchange Index are forecast to grow 12.3 percent in 2013, an acceleration from last year’s 10 percent expansion, according to data compiled by Bloomberg.
BPI Asset’s Garcia said he’s holding more consumer, infrastructure developer and bank shares than are represented on benchmark indexes. He’s underweight telecommunications, energy and utilities that are expected to give relatively lower returns in an expanding economy.
“We don’t think the market is overvalued yet at these levels,” Garcia said. “Any pullback in the market we will take it as a buying window at this point. Less cyclical sectors will lag the market rally and those that will outperform are those with strong links to the economy and beneficiaries of all-time low interest rates.”
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