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Philippine Stocks Drop Most in 11 Months on Record Valuations

April 23 (Bloomberg) -- Philippine stocks fell, dragging the benchmark index down the most since June, after a four-day rally drove the gauge above 7,000 for the first time.

Alliance Global Group Inc., which has a Manila casino venture with Genting Hong Kong Ltd., lost 4.6 percent. Philex Mining Corp., the nation’s largest metals producer, slumped 5.3 percent, the most since September. Aboitiz Equity Ventures Inc., which has investments in power and finance, fell 5.5 percent after the stock’s valuation reached a record yesterday.

The Philippine Stock Exchange Index sank 1.9 percent to 6,982.36 at the close in Manila, the sharpest loss since June 4. The measure rallied 4.9 percent in the past four days to a record 7,120.48, pushing valuations to an all-time high of 20.4 times 12-month projected profits, according to data compiled by Bloomberg.

“Valuations have always been an issue,” Marvin Fausto, who helps manage about $20 billion as chief investment officer at Manila-based BDO Unibank Inc., said by phone today. “This is a natural correction from yesterday’s exuberance of reaching the 7,000 level for the first time.” BDO Unibank is the nation’s largest bank by assets.

The index has surged 20 percent this year as fourth-quarter economic growth data beat estimates, the central bank kept benchmark interest rates at a record low, and after Fitch Ratings awarded the nation its first investment-grade debt rating. The gauge index trades at 22.7 times reported earnings, the third-highest valuation in the Asia-Pacific region after Japan and South Korea, according to data compiled by Bloomberg.

Susceptible to Drops

The Philippines is susceptible to corrections because of “expensive” valuations, Christopher Wood, equity strategist at CLSA Asia-Pacific Markets, said on April 15. Wood is overweight on the nation’s stocks, citing improving economic prospects and domestic demand.

Still, Philippine equities may fall as much as 30 percent and rebound quickly, Wood said a week ago. Investors “should buy into the correction” as the nation’s equities may stay overvalued for some time, he said

The Philippine Stock Exchange Index’s 50-day volatility has risen as price swings in the past five weeks sent the measure yesterday to the highest level since August.

“Over-valuation is the overriding reason behind the rise in volatility,” Junie Banaag, who helps manage 45 billion pesos in equities at Manila-based Philamlife AIA, said by phone. “This volatility signals the presence of selling pressure, and that selling pressure is coming from those who realize that this over-valuation isn’t sustainable.”

Overseas investors have bought a net $1.29 billion of Philippine equities this year, 126 percent more than in the same period in 2012. They have purchased a net $282.01 million of the nation’s stocks this month, heading for a fifth straight month of net buying.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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