Philippine Stocks Slump as Valuations Outweigh GDP: Manila MoverIan Sayson
Philippine stocks sank the most since September 2011 as concern valuations are excessive overshadowed government data showing the economy grew in the first quarter at the fastest pace in three years.
Ayala Land Inc., the nation’s biggest developer, slumped 5.7 percent, the biggest contributer to the index’s loss, while SM Investments Corp., the nation’s biggest publicly-listed company, fell the most since August. San Miguel Corp., the country’s largest food and drinks company, slumped to the lowest level since November 2010 before its removal from the MSCI Philippines Index.
The Philippine Stock Exchange Index tumbled 3.8 percent to 6,953.35 at the close. The gauge has fallen 1.7 percent this month, its first monthly loss since August. The index’s 30-day volatility, a measure of price swings, rose to the highest level since June 2012. Government data showed today that first-quarter gross domestic product expanded 7.8 percent, the fastest pace since the second quarter of 2010.
“There’s a disconnect between the economy and the valuation of the market,” Rico Gomez, who helps manage who helps manage $2.8 billion at Rizal Commercial Banking Corp. in Manila, said by phone today. “While overseas investors say they like our economic fundamentals, they find valuations to be stretched.”
Accelerating economic growth, a strengthening peso and two upgrades in the nation’s sovereign debt rating to investment grade this year drove the benchmark index to a record close of 7,392.20 on May 15. That pushed valuations to 20.8 times projected 12-month earnings, the highest since Bloomberg began tracking the data in 2006.
Overheating risks have risen “significantly” in terms of construction growth, which may turn “bubbly,” RBS Plc analysts Vaninder Singh and Sanjay Mathur wrote in a note to clients. RBS now sees the economy growing at 6.9 percent this year, up from the previous prediction of 6.6 percent, they wrote.
The gauge has lost 5.9 percent since May 15 and trades at 19.5 times forecast profits, compared with the MSCI Emerging Markets Index’s 10.3 times. The Philippines’ multiple was at 20.3 a month earlier, the highest since at least 2006.
The peso’s depreciation and the strengthening dollar are also driving equity losses, according to Alex Pomento, a Manila-based strategist at Macquarie Group Ltd.
“One of the premises for this year’s rally is continued peso strengthening,” Pomento said today. “The currency is weakening, so we are seeing some withdrawals.”
The peso has lost 3 percent this month, heading for the biggest decline since June 2012, according to data compiled by Bloomberg.
“Investors are taking profits on Philippine peso assets,” said Julian Tarrobago, who helps manage at least $1 billion as portfolio manager at Manila-based ATR Kim Eng Asset Management Inc. “This is a healthy correction and nothing surprising given valuations and the performance of the peso. You’d rather have this kind instead of a market that keeps rising otherwise you’d be in for a deeper correction.”