Bloomberg News

Philippine Stock Valuations Near Peak, Exchange CEO Says

March 15, 2012

Philippine Stock Exchange Inc. (PSE) President and Chief Executive Officer Hans Sicat said stock valuations at the highest levels since November 2010 are “near the peak.”

“We are hoping we are not right at the peak, but we are somewhere building up to the peak,” Sicat said in an interview in Singapore today. Philippine companies “are still growing faster than the underlying economy because we are either growing by introducing more products within the Philippines or ASEAN,” he said, referring to the Association of Southeast Asian Nations.

The Philippine Stock Exchange Index (SHCOMP) has climbed 15 percent this year as the central bank cut borrowing costs to stimulate the economy. The gauge closed at a record 5,050.99 yesterday, driving valuations to 15.5 times estimated profit, the highest level since November 2010. The MSCI Emerging Markets Index is at 10.9 times. The Philippine gauge fell 0.4 percent today.

“In the short term, it’s not too healthy,” said Sicat, who has run the operator of the nation’s equities market since January last year. He didn’t say what he regards as a fair valuation for equities. “The nice thing about having a relative bull market is suddenly people take a look at the stock market and say it’s good to participate.”

‘Wrong Address’

The Philippines ranks 16th out of 19 Asia-Pacific countries measured by Vriens & Partners’ Good Governance for International Business Index in 2011, ahead of Cambodia, Laos, Bangladesh and Myanmar. The Philippines is ranked 129th of 183 countries in terms of degree of corruption as seen by business people and country analysts in 2010 and 2011, according to data released by Transparency International in Berlin.

“A lot of fund managers and investors are saying this is the Philippines and there will always be a noise level,” Sicat said. “Ten years ago, when I was a banker on road shows, the investors will say this is an interesting company, but it’s kind of the wrong address, we can take a huge discount on that. It’s so frustrating, the wrong address syndrome.”

Sicat, the former chief Philippine representative of a Citigroup Inc. unit from 2000 to 2008, joined the exchange as chairman in 2009, and was the third president the exchange had in a period of less than 12 months.

Smallest Market

The Philippine stock market has been left behind by most of its peers in the region in terms of scale, product offerings and trading activity. With a market capitalization of $182 billion as of March 14, it’s the smallest of Southeast Asia’s five major markets, behind Singapore, Malaysia, Indonesia and Thailand. Japan is Asia’s largest market with a value of $3.75 trillion.

The Philippine economy will grow at least 5 percent in 2012, a “conservative estimate,” driven by infrastructure spending and expanding trade, Economic Planning Secretary Cayetano Paderanga said Feb. 28. Economic growth halved to 3.7 percent last year, from a revised 7.6 percent in 2010, as Europe’s sovereign-debt crisis and a faltering recovery in the U.S. cut demand for exports.

Exchange Merger

The Philippine bourse expects 197 billion pesos ($4.6 billion) to 198 billion pesos to be raised in primary and secondary equity sales this year, almost double the 107 billion pesos last year, according to Sicat. The exchange is expecting around 85 such deals this year, compared with 55 last year, according to Sicat.

The Philippine Stock Exchange is in discussions with the Securities and Exchange Commission about the framework for a potential merger with Philippine Dealing & Exchange Corp., which runs a trading system for bonds, and expects that structure to be in place this year, Sicat said. Ownerships restrictions are currently impeding the proposed merger.

“I hope we are able to change things structurally, so we can catch up with peers like Malaysia and Thailand,” Sicat said.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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