Biggest Philippine Money Manager Sells Stocks on Valuations

The biggest Philippine money manager is reducing equity holdings on concern a rally that drove valuations to the most expensive level in Asia is poised to end.

The Philippine Stock Exchange Index, which is less than 0.1 percent away in entering a bull market, may face a correction in coming months, Fitzgerald Aclan, a vice president in the money management unit of BDO Unibank Inc., which oversees about $18 billion, said in an interview in Manila. The bank plans to introduce new funds this year that give clients access to overseas markets, including the U.S. and China.

Philippine shares have posted the biggest gain among equity gauges in Asia since December as the economy’s strongest two-year expansion since the 1950s in 2013 and a ratings upgrade by Standard & Poor’s lured overseas funds. The rally pushed valuations to 18.1 times estimated earnings last week, the highest level since August and the most expensive in the region, according to data compiled by Bloomberg.

“We are opportunistic on certain sectors and stocks that we can take profit on,” Aclan said on May 16. “Even as we remain positive on the market, we are not ruling out a correction in the near term. Share prices have gone up sharply.”

Bull Market

The gauge reached an intraday high of 6,906.63 on May 14, exceeding a 20 percent gain from an Aug. 28 low, before closing below the threshold that some investors use to identify a bull market. The measure has climbed 17 percent this year. It climbed 0.2 percent to 6,882.73 at the close today.

Aclan, who declined to name which stocks he’s selling, said any selloff won’t be as sharp as the previous one in 2013. The index slumped 22 percent in three months from its peak in May after the U.S. Federal Reserve signaled it would cut stimulus. The index will trade between 6,500 to 7,000 in the coming months, the 44-year-old money manager said.

Losses will be limited as the nation sustains annual economic growth of at least 6 percent for a third year, Aclan said. The gauge may overshoot 7,000 should earnings beat forecasts and may touch 7,400 towards year-end when investors start trading on 2015 earnings prospects, he said. BDO funds will prepare to buy when the gauge falls to 6,600, he said.

Earnings Horizon

“The market is cheaper if you extend your earnings horizon,” Aclan said. “The investment grade ratings upgrade further solidifies the view that Philippine macro fundamentals remain intact. The general direction is for us to look at opportunities when the market corrects.”

The nation’s long-term sovereign debt rating was raised one level to BBB, with a stable outlook, by S&P, which cited economic reforms and improvement in government finances. The upgrade came a year after the country exited junk status.

Philippine economic growth accelerated to 7.2 percent last year from a 6.8 percent in 2012 as the central bank cut interest rates to a record low and the government boosted infrastructure spending.

Aclan said his favored industries are consumer, property, gaming and infrastructure. He’s underweight banks because of their expected weak earnings this year, and has below-benchmark positions in some utilities and energy companies.

Six of the 10 biggest gainers this year in the benchmark Philippine index are property and consumer-related shares. They include Megaworld Corp., the largest provider of BPO and call center offices, and Universal Robina Corp., a maker of bottled iced tea and snacks. Megaworld has gained 43 percent this year while Universal Robina has rallied 39 percent.

BDO plans to introduce about six feeder funds this year that will allow its clients to access overseas markets including China, Japan, the U.S. and Europe, Executive Vice President Ador Abrogena said on May 16. The bank’s assets under management will probably increase 10 percent this year, he said.

“There’s a lot of liquidity in the Philippines and if you use that up just to buy Philippine assets, they become overvalued very fast,” Abrogena said. “When that happens, you are better off looking for opportunities outside of the Philippines.”

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