The Philippines’s largest money manager has increased cash holdings, expecting the nation’s benchmark stock index will extend its decline from a record before the U.S. considers raising interest rates this year.
Frederico Ocampo, who helps manage $18 billion as chief investment officer at Manila-based BDO Unibank Inc., is betting he’ll be able to buy shares cheaper as global equities drop if the Federal Reserve signals this year it will raise rates this year. The Federal Open Market Committee, which starts a two-day meeting Tuesday, is predicted by economists to increase rates by the end of 2015.
“We have raised cash levels and we are still holding on to our cash, anticipating a change in the FOMC’s tone could trigger a continued correction,” Ocampo said in an interview. “We are holding cash because we expect there will be more attractive levels to pick up stocks.”
About 15 percent to 20 percent of holdings are now in cash, compared with the end of 2014, when it was fully invested, he said.
The benchmark Philippine Stock Exchange Index has lost 8.3 percent since closing at a record 8,127.48 on April 10 as first-quarter economic growth weakened to a three-year low and fueled foreign capital withdrawals. The gauge has rebounded 1.8 percent since touching a five-month low last week.
Ocampo said Philippine stocks could repeat what happened two years ago, when then-Fed Chairman Ben S. Bernanke said in May 2013 the U.S. was considering cutting bond purchases. From a peak that month, the benchmark gauge tumbled 20 percent, paring the year’s gain to 1.3 percent. The measure advanced 23 percent last year.
While the Fed is expected to keep interest rates unchanged in this month’s meeting, improving economic reports since its last session have pushed the probability for a September increase to 53 percent, data compiled by Bloomberg show.
“Once the Fed changes its tone and signals that it’s ready to raise rates, we will see a global correction,” Ocampo said. “After the uncertainties are gone and investors get their bearings, share prices will go up again.”
The Philippine stock index could fall to between 7,200 and 6,800, making valuations more attractive, he said. It closed at 7,456.16 on Monday.
The benchmark index is valued at 18.3 times projected 12-month earnings, the most expensive in Southeast Asia, according to data compiled by Bloomberg. The MSCI Emerging-Markets Index is valued at 11.8 times.
Foreign funds have sold a net $582.6 million of the nation’s stocks so far this quarter, double the combined $292.7 million withdrawals from Indonesia and Thailand since April 1, based on data compiled by Bloomberg.
Investors should favor high-dividend plays and growth stocks, including retailers, property developers, utilities and power companies, Ocampo said.
“The growth drivers for the Philippine economy are still there,” Ocampo said “We can all live with an increase in interest rates. It’s not as if interest rates will rise from 1 percent to 7 percent.”