By Ian Sayson, Cecilia Yap and Clarissa Batino
For the largest Philippine pension fund, record foreign outflows are making the nation’s equities a more attractive investment.
As the Philippine Stock Exchange Index surged to a record in April, the Government Service Insurance System was selling, according to its president Robert Vergara. Since then, the benchmark gauge has fallen every month, its longest losing streak in 13 years, and the fund has been purchasing shares—spending a third of its annual equities budget in a P5-billion buying spree in August alone, he said.
“This year we were really behind our investment program, we were actually taking profit as the market was going up,” Vergara said in an interview in Manila. Now, the fund is “predominantly buying” and there’s “a possibility that we will bottom out, maybe in the next couple of weeks,” he said.
Foreign money managers sold a record $1.28 billion of the nation’s shares in the three months through September, fueling the stock index’s biggest quarterly loss in seven years, as a slowdown in China’s economy roiled global markets and traders boosted expectations the US will raise interest rates. While the Philippine Stock Exchange Index remains the region’s priciest, valuations have fallen to near the cheapest levels in 20 months.
The outlook for the Philippines remains positive even as Asian growth slows, Vergara says. The nation is more insulated from weaker world growth than other emerging markets because of its reliance on domestic spending and steady dollar inflows from remittances, according to the International Monetary Fund. Gross domestic product growth will probably accelerate to 6.3 percent in 2016, from 6 percent this year, the Asian Development Bank forecast last month.
The bond market is also pushing back expectations for the first Federal Reserve interest-rate increase in almost a decade until March at the earliest. Traders pared bets on a 2015 hike and subsequent increases after the US reported surprisingly weak labor data for September.
Vergara said the GSIS will consider spending more than the P15 billion it set aside for stock investments this year if share prices continue to decline.
The nation’s stock index has tumbled 16 percent from an April 10 record high and trades at 16.8 times projected 12-month earnings, down from 20.8 at its peak on May 2013. That’s still 37 percent higher than the MSCI Asia Pacific Index, according to data compiled by Bloomberg.
While the Philippine outlook is “good” compared with its neighbors, that’s already priced into shares, says Dennis Lim, Singapore-based co-chief executive at Templeton Asset Management Ltd., which has an underweight rating on the nation’s equities. “Valuations are reflecting all the positives.” Bloomberg
The Asian Development Bank estimates growth in the Philippine economy will accelerate in 2016, provided China’s economic slowdown and a drought caused by the El Niño weather pattern aren’t too severe. Earnings by listed companies are projected to expand 16 percent over the next 12 months, according to analyst estimates compiled by Bloomberg.
While Vergara said valuations may fall further to 14 times forecast profits, now is still an appealing time to buy shares.
“As long as there are good growth prospects for the economy and good earnings possibilities for well-run companies, when you buy at high valuations, you just wait for earnings to catch up and eventually these will move together,” he said.