Bloomberg News

Philippine Stocks First to Worst as Funds Sell: Southeast Asia

December 22, 2013

Philippine Stock Exchange

An electronic board displays stock figures as an employee works in an office above the trading floor of the Philippine Stock Exchange in Manila, the Philippines. Photographer: Julian Abram Wainwright/Bloomberg

A 21 percent slump in Philippine stocks that’s turned them from the world’s best performers into the biggest losers isn’t enough to lure back Macquarie Investment Management Ltd. and Bank Julius Baer & Co.

The benchmark Philippine Stock Exchange Index has plunged since climbing 330 percent from October 2008 through to its peak on May 15. International investors have pulled a net $955 million from the country’s equities since July amid the prospect of reduced Federal Reserve stimulus and slower growth. The gauge traded at 21 times projected 12-month earnings in May, the highest after Greece among emerging and developed markets.

Weakening profits, accelerating inflation and the devastation caused by Typhoon Haiyan last month have dented confidence in an economy that expanded at almost three times the global average annual pace from 2008 to 2012. Now near their cheapest level in a year, shares in Southeast Asia’s fifth-largest economy are still too expensive to buy, according to Macquarie and Bank Julius Baer.

“We seek at least another 15 percent fall from here for the companies we are looking at before getting interested again,” Sam Le Cornu, who helps oversee $1 billion at Macquarie in Hong Kong for the Asian Listed Equities Division, wrote in an e-mail on Dec. 18. “We sold all our positions in the Philippines in May and hold just one.”

The Philippine index traded at 16 times future profits at the close on Dec. 20, still premium of more than 50 percent over the MSCI Emerging Markets Index’s multiple of 10.3. The index rose 0.8 percent to 5,883.19 as of 9:46 a.m. in Manila.

Stock Valuations

Earnings at the 30 companies on the index are forecast to grow an average 5.8 percent in the next 12 months, the slowest after Turkey among developing nations, according to data compiled by Bloomberg.

Julius Baer went underweight on the nation’s shares in July and is also waiting for another drop of about 15 percent, Mark Matthews, Singapore-based head of Asia research for the company, which oversees about $377 billion in client assets, wrote in an e-mail Dec. 18. Philippine stocks aren’t “cheap.”

The nation’s shares have tumbled along with those of its neighbors since May 22, when Fed Chairman Ben S. Bernanke said he may trim his $85 billion in monthly bond purchases this year and end it by mid-2014, prompting the flight of foreign capital from developing-nation assets. Indonesia’s Jakarta Composite Index fell 20 percent and Thailand’s SET Index slid 18 percent.

Fed policy makers said Dec. 19 they would lower monthly asset buying by $10 billion while extending the timeline for zero interest rates.

Typhoon Impact

The World Bank on Dec. 6 cut its 2013 and 2014 economic-growth forecasts for the Philippines to 6.9 percent and 6.5 percent, from previous estimates of 7 percent and 6.7 percent, after Typhoon Haiyan slammed into the Philippines on Nov. 8.

The cost of the storm, which left at least 6,100 people dead, is estimated at $6.5 billion to $14.5 billion, according to catastrophe modeling firm AIR Worldwide. Consumer prices rose by the fastest pace since February last month after the typhoon damaged crops.

Declines in the stock market have been excessive and the typhoon may ultimately provide a boost to the economy through reconstruction and increased remittances from overseas workers, according to David Gaud, a senior money manager at Edmond de Rothschild Asset Management, which oversees about $120 billion.

Credit Ratings

“We still maintain an overweight position on the Philippines,” Gaud said by phone on Dec. 12. “Within Southeast Asia, this is the place you want to be.”

Philippines shares rallied 27 percent to a record in the first five months of the year as President Benigno Aquino’s policies helped the economy grow the fastest in three years in the first quarter, and Fitch Ratings awarded the nation its first investment-grade credit rating. Moody’s Investors Service and Standard & Poor’s have since followed suit.

Still, weaker earnings and the paring of Fed stimulus will probably spur further declines in shares, according to The Philippine American Life & General Insurance Co.

“The Philippines is a small-cap country that easily swings from the movement of large overseas funds,” said Junie Banaag, who helps manage about $1.1 billion at Philippine American Life & General Insurance in Manila. “The market has a small door for liquidity to go out.”

Earnings growth may drop by almost two percentage points in 2014, driven by a forecast 14 percent decline in the banking sector, according to Credit Suisse Group AG. The stock market in the nation of about 100 million people is valued at $214 billion, less than a quarter of the size of South Korean or Indian markets.

Petron Corp. (PCOR), the nation’s largest refiner, is valued at 32 times earnings after sinking 13 percent since May 15. That’s three times the MSCI Asia Pacific Energy Index’s valuation. Ayala Land Inc. (ALI), the country’s biggest real estate developer, has a valuation of 24 times following a 30 percent slump.

“We visit Manila regularly and we saw in May a very expensive market,” Macquarie’s Le Cornu said. “We still are visiting Manila yet we have not seen a far enough pullback.”

To contact the reporters on this story: Ian Sayson in Manila at isayson@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net


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