Top Philippine Stock Fund Says Record Flows Show Best GrowthIan Sayson
The longest stretch of inflows into Philippine equities since at least 1999 shows growing confidence among foreign investors that the economy has the best prospects in Asia, according to the nation’s top-performing stock picker.
Overseas money managers were net buyers on the Philippine Stock Exchange for a 26th straight day today, adding $571.8 million to holdings during the period and capping the longest streak of inflows since Bloomberg began compiling the data in March 1999. Noel Reyes, the chief investment officer at Security Bank Corp., says fresh purchases may drive further gains as long as the nation maintains economic growth near 7 percent.
Southeast Asia’s fifth-biggest economy capped its strongest two-year expansion since the 1950s in 2013 as the central bank held interest rates at record lows, while exports jumped at a faster-than-estimated 24 percent pace in February. The benchmark equity index has climbed 18 percent from last year’s low in August, approaching the 20 percent threshold that signals a bull market.
“The Philippines continues to be the country with the best prospects on the macro side,” Reyes, 48, who helped oversee about $810 million at Security Bank as of December from Manila. The firm’s SB Peso Equity Fund has returned 19 percent in 2014, the most among 29 Philippine peers tracked by Bloomberg. “Funds are betting that these good GDP expectations will translate into good corporate earnings.”
Reyes said he favors infrastructure, consumer and energy companies. While he declined to name specific stocks, data compiled by Bloomberg show Manila Electric Co. and Puregold Price Club Inc. were among the SB Peso Equity fund’s biggest holdings at the end of January.
Manila Electric, the nation’s largest power retailer, climbed 10 percent this year through yesterday while Puregold, the biggest grocery-store operator, rallied 21 percent. The Philippine Stock Exchange Index advanced 15 percent, versus a 1.9 percent decline in the MSCI Asia Pacific Index. The Philippine measure was little changed today.
“The government will spend on infrastructure and power will be required to sustain economic expansion, while consumption remains a big component of the economy,” Reyes said. The money manager has an underweight position in banks on expectations they will fail to repeat trading gains that boosted earnings in 2013.
Philippine President Benigno Aquino plans to raise spending to a record this year and will seek more than $11 billion of investment in airports and roads to deliver economic growth between 6.5 percent and 7.5 percent.
Gross domestic product expanded 7.2 percent in 2013 and 6.8 percent in 2012, data compiled by Bloomberg show. That compares with 4.7 percent growth for developing economies worldwide last year, according to the International Monetary Fund.
Sustained economic expansion will support the premium on Philippine stock valuations relative to the region, according to Reyes. Shares in the nation’s benchmark index trade at 17.8 times estimated 12-month earnings, compared with a 12.3 multiple for the MSCI Asia Pacific Index.
“The key for valuation is sustainability of economic growth,” Reyes said. “If GDP weakens, then that valuation will drop because that will have an effect on corporate earnings.”
The economy will probably expand 6.5 percent this year while corporate earnings grow 8 percent, Reyes said. Consumer prices, which climbed at a 3.9 percent pace in March, may increase in a range between 3.7 percent and 4.2 percent, he said.
Reyes said the Philippine Stock Exchange index may climb to as high as 7,000 this year if GDP and inflation figures are better than investors anticipate. The gauge, which closed at 6,765.93 today, reached a 2014 high of 6,784.95 on April 22.
“We need more catalysts to break the resistance at 6,800, like better-than-expected GDP and inflation,” Reyes said. “Investors want more proof that economic growth is sustainable.”