Top Philippine Fund Keeps Cash as Valuations Clash With China

  • Philippine stock gauge entered bear market on Monday
  • Foreign funds sell $20.8 million of shares this week

The Philippines’ top fund manager is staying with cash as the cheapest shares in three years aren’t attractive enough to ease his anxiety over China’s economy and stock-market rout.

Smith Chua, who manages four out of the five best-performing Philippine equity funds over the past two years as chief investment officer at Bank of the Philippine Islands, said his cash holding is the same as August and September when it doubled from the start of 2015 as the volatile environment in China makes it difficult for him to invest. Chinese stocks headed for a bear market on Thursday, while government bond yields plunged to a record.

“Valuation wise, it’s a buying level but you have these uncertainties before you,” Chua, who helps manage about $11.8 billion, said in an interview in Manila on Wednesday. “China is a major source of uncertainty. What’s keeping us back is the issue China may still pull something out of the hat.”

Chua joins other money managers who are keeping cash amid the global rout. Robert Ramos, Manila-based chief investment officer at Union Bank of the Philippines, said Wednesday that he’s holding cash that’s about double from a year ago because of concerns over China’s financial markets and economy. Recent data showed producer prices extending declines and manufacturing continuing to weaken.  

Philippines Stock Valuations Cheapest Since 2012
Philippines Stock Valuations Cheapest Since 2012

Philippine stocks entered a bear market on Monday amid a selloff by foreign investors as concern about the slowdown in the world’s second-biggest economy and slumping oil prices curb demand for developing-nation assets already hurt by higher U.S. interest rates. Valuations in the country’s share index sank to 15.3 times estimated earnings last Monday, the lowest since September 2012.

The Philippine Stock Exchange Index tumbled 4.4 percent on Monday, taking its decline from a record set in April to more than 20 percent, the threshold in which technical analysts classify as a bear market. The equity measure fell 1.3 percent at 11:15 a.m. local time. Foreign funds sold net 20.8 million worth of shares this week, data compiled by Bloomberg show. More than $2 trillion was erased from the capitalization of the 31 largest emerging equity markets this year through Wednesday.

Chua’s BPI Equity UITF has returned 9.9 percent in the past two years, the top performer among 31 funds tracked by Bloomberg.

“We know there is an upside from where we are sitting today, but if China does something again, then the environment becomes volatile again and investors will ignore fundamentals,” said Chua.

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