Philippine Stock Trading Drops as Valuations Surge to RecordIan Sayson
Philippine stock trading volumes are sinking to the lowest level in two months and volatility is picking up as the benchmark index’s jump above 7,000 for the first time spurs concern that shares have become too expensive.
The Philippine Stock Exchange Index fell for a second day, losing 0.1 percent to 6,972.69 at the close in Manila. It sank 1.9 percent yesterday, the most since June 4, after the measure closed at an all-time high of 7,120.48 on Monday. An average of 259.5 million of the gauge’s shares traded in each of the past 30 days, the lowest level since Feb. 22, data compiled by Bloomberg show. The index’s 50-day volatility, a measure of price swings, climbed to 17.5, the highest level since July 31.
The Philippine gauge has surged 20 percent this year as fourth-quarter economic growth data beat estimates, the central bank kept interest rates at a record low and Fitch Ratings assigned the nation its first investment-grade debt rating. The rally drove valuations to an all-time high of 20.4 times projected 12-month profits April 22, or twice the MSCI Emerging Markets Index multiple, data compiled by Bloomberg show.
“Volume is lower because share prices have gone up and become expensive,” Junie Banaag, who helps manage about $1.1 billion in equities at Manila-based Philamlife AIA, said by phone. “Over-valuation is the overriding reason behind the rise in volatility. Selling pressure is coming from those who realize that this over-valuation isn’t sustainable.”
The Philippine Stock Exchange Index has surged 318 percent since October 2008, at least 164 percentage points more than measures for every other bull market in emerging and developed nations, according to data compiled by Bloomberg.
“We have gone beyond the correct valuation,” Banaag said. “For us to achieve a valuation higher than we are today, earnings will have to run much faster. If consensus earnings growth is 14 percent, then it has to run four times faster and overnight rates have to fall 100 basis points simultaneously.”
The Bangko Sentral ng Pilipinas has kept the benchmark overnight rate at a record low 3.5 percent after cutting it four times by a total of 100 basis points, or 1 percentage point, in 2012. The bank has trimmed interest rates on special deposit accounts twice this year.
The Philippine Stock Exchange Index is trading at 3.3 times the value of corporate assets, more than double the MSCI Emerging Markets Index’s price-to-book ratio of 1.5, data compiled by Bloomberg show.
“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 yesterday. Yesterday’s decline “is a natural correction.” BDO Unibank is the nation’s largest bank by assets.
The Philippines is susceptible to corrections because it is “expensive,” Christopher Wood, equity strategist at CLSA Asia-Pacific Markets, said April 15. Wood is overweight on the nation’s stocks, citing improving economic prospects and domestic demand.
Philippine equities may fall as much as 30 percent and rebound quickly, Wood said. Investors “should buy into the correction” as stocks may remain overvalued for some time, he said.
International investors have bought a net $1.27 billion of Philippine equities this year through April 22, compared with $2.55 billion of inflows in 2012, data compiled by Bloomberg show. Foreign investors have purchased a net $282 million in April, poised for a sixth month of net buying.