Record Philippine Equity Outflows to Continue, Coconut Bank Says

  • Foreign funds have sold $1.24b of stocks in past five months
  • Outflows may be moderate compared with other SE Asian markets

International investors will probably continue to sell Philippine stocks as the prospect of a U.S. interest-rate increase damps demand for riskier assets and drives foreign capital to developed markets, according to United Coconut Planters Bank.

Overseas investors withdrew a net $1.24 billion from Philippine shares from April through August, a record for a five-month period, according to data going back to March 1999. Foreigners have turned net sellers this year, after six straight annual inflows, as slowing economic growth, an impending Federal Reserve rate rise and a surprise devaluation in the Chinese yuan weakened the appeal of emerging-market equities.

“An increase in U.S. rates will lead to more outflows, because once you have higher interest rates, then fixed-income securities in general will become slightly more attractive,” said Steve Sevidal, who helps manage $1 billion as chief investment officer at United Coconut Bank. “This anticipated rate increase is putting a lot of people on guard.”

The benchmark Philippine Stock Exchange Index has declined 2.7 percent this year, compared with the Stock Exchange of Thailand Index’s 8.5 percent decline, a 9.3 percent loss in Malaysia and a 16 percent slump in Indonesia. Foreign funds have offloaded a net $148 million of Philippine stocks in 2015, compared with $402 million in Indonesia and $2.46 billion in Thailand.

Valuation Appeal

Outflows may slow as valuations decline and the outlook for growth lures investors back, said Sevidal, whose UCPB High Dividend Fund was the second best-performing Philippine equity fund in August. Lower levels of foreign investment relative to regional peers, and an economy that’s still expanding the fastest among major markets in Southeast Asia, have insulated the Philippines from the brunt of the global selloff, he said.

The benchmark Philippine gauge was valued at 16.6 times estimated earnings on Aug. 24, the cheapest since February 2014. That’s a 16 percent discount to its peak in April, while still being the most expensive in Southeast Asia. The gauge last traded at a multiple of 17.1.

“Outflows will likely continue but won’t be as strong as we have seen," Sevidal said, adding that he’s keeping his cash holdings above normal levels on expectations a Fed interest-rate rise will spur more selling. “Our fundamentals are still generally intact and valuations have touched attractive levels.”

Philippine gross domestic product grew 5.6 percent in the second quarter, faster than Indonesia, Thailand, Malaysia and Singapore. Growth was buoyed by an expanding business-process outsourcing industry that’s expected to earn $21.2 billion this year and rising remittances from overseas Filipinos, who repatriated $12.1 billion in the first half.

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