Philippine stocks may retreat within weeks after the benchmark gauge’s biggest monthly gain in five years made equities among the most expensive in Asia, according to the nation’s largest money manager.
The Philippine Stock Exchange Index, which surged more than 20 percent from a January low to this year’s high of 7,376.41 in March, could slide to as low as 6,900, or a drop of almost 7 percent, said Fritz Ocampo, chief investment officer at BDO Unibank Inc.
Stocks will rebound after that as valuations become more “reasonable” and campaign spending for next month’s presidential and national elections spur economic growth, he said. Two of the bank’s four equity funds tracked by Bloomberg are the best performers in March with returns of at least 12 percent.
“We are overbought, we are trading at very rich valuations,” Ocampo, who helps manage about $20 billion, said in an interview. “We are actually taking some profit.”
The Philippines became the first Asian equity market to enter a bull market this year as global funds piled in, sending valuations to the second-highest in the region after New Zealand. Asian shares rebounded in March as rising oil prices, bets that the US Federal Reserve won’t rush to raise interest rates and signs that China’s economy is stabilizing bolstered appetite for riskier assets.
Philippine shares are trading at 17.8 times 12-month projected earnings, near the highest level since August and versus its 10-year average of 14.7, data compiled by Bloomberg show. The MSCI Asia Pacific Index has a multiple of 12.4 while New Zealand’s stock measure is valued at 18.5.
The Philippines will choose a successor to outgoing President Benigno Aquino on May 9. Aquino’s record in curbing corruption, boosting growth and trimming the budget helped the nation secure an investment-grade debt rating for the first time in 2013. The election and what the new government will do with state spending will lure back overseas funds that withdrew in 2015 and drive the equities index to rise to between 7,600 and 7,800 in the second half, Ocampo said.
The election will help spur economic growth to exceed 6 percent this year while corporate earnings are projected to expand as much as 15 percent after a disappointing 8 percent gain in 2015, Ocampo said. Gross domestic product growth weakened to 5.8 percent last year, the slowest pace since 2011.
“There are still plenty of of investors who aren’t coming in because they want to know who will lead Philippines Inc. and what will be the priority of the new chief executive,” Ocampo said. “Concerns over currencies, commodities and China will also continue to hog the limelight so the rally won’t be a diagonal line.”
The Philippine stock gauge jumped almost 9 percent in March as global funds poured in $203.86 million, halting a record 11 months of outflows. The equity index has climbed 4.1 percent this year versus a 5.2 percent drop for the MSCI Asia Pacific measure.