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The world’s biggest equity bull market is propelling Philippine valuations to all-time highs as international investors pile into the country’s stocks in an endorsement of President Benigno Aquino’s economic policies.
The Philippine Stock Exchange Index has climbed 13 percent this year, bringing gains since October 2008 to 285 percent, at least 124 percentage points more than every other bull market in emerging and developed nations, according to data compiled by Bloomberg. The index turned into Asia’s most expensive from the second-cheapest four years ago as rallies in Ayala Land Inc. and Bank of the Philippine Islands lifted the gauge to 19 times estimated profits.
Traders work on the trading floor of the Philippines Stock Exchange in Makati City in Manila, the Philippines. Photographer: Brent Lewin/Bloomberg
The Philippines Stock Exchange logo is displayed at its branch in Makati City in Manila. There is “probably room” for Philippine stock valuations to climb as long as growth in earnings and the economy can be sustained, Hans Sicat, president of the country’s bourse, said in a Feb. 15 interview in Tokyo. Photographer: Brent Lewin/Bloomberg
Workers walk along a pier at the Tsuneishi Holdings Inc. shipyard following a ceremony to launch a bulk carrier in Cebu, the Philippines. Philippine gross domestic product increased 6.8 percent from a year earlier in the fourth quarter, compared with 7.9 percent in China. Photographer: Veejay Villafranca/Bloomberg
Benigno Aquino, president of the Philippines, plans to boost spending to a record and seek more than $17 billion of infrastructure investments to spur growth of at least 6 percent this year. Photographer: Julian Abram Wainwright/Bloomberg
A vendor waits for customers as a laborer walks past at a market in Manila. Philippine gross domestic product will probably increase 6 percent to 7 percent this year and accelerate in 2014, Economic Planning Secretary Arsenio Balisacan said at a forum in Manila on Feb. 13. Photographer: Julian Abram Wainwright/Bloomberg
Aquino’s efforts to boost spending on government projects and tackle corruption are convincing foreign investors to look past the nation’s speculative-grade credit rating and focus on the third-fastest growth in Asia after China and Thailand. While Invesco Ltd. says shares are too expensive, Samsung Asset Management and Religare Capital Markets see further gains of at least 20 percent and an investment-grade ranking this year.
“Funds will remain net buyers,” Alan Richardson, who helps oversee about $110 billion as a money manager at Samsung Asset in Singapore, said in a Feb. 6 e-mail. “The focus is on opportunity and growth rather than contraction caused by deleveraging, bank recapitalization, fiscal austerity and increased regulatory oversight in many of the developed economies.”
Bull Rally
The benchmark gauge for the nation’s $236 billion equity market rose 0.9 percent, the biggest gain in Asia today, to 6,625.90 as of 1:48 p.m. in Manila. The index was poised for a record close. The bull market, defined as an advance of at least 20 percent from the most recent low without a drop of the same magnitude on a closing basis, is the biggest since Bloomberg began compiling Philippine index data in 1987.
Mexico’s IPC Index has climbed about 161 percent since March 2009, making it the second-biggest bull market among 45 emerging and advanced countries, while the Standard & Poor’s 500 Index is up 125 percent from a low in the same month. In China, the biggest emerging market, the Shanghai Composite Index has increased 24 percent from its Dec. 3 low.
Philippine shares will probably return about 38 percent by the end of 2014, according to Samsung’s Richardson. The benchmark index may rally 20 percent to 30 percent this year, said John Sturmey, head of equity capital markets at Religare Capital Markets, a unit of New Delhi-based Religare Enterprises Ltd.
Foreign Inflows
“We are very bullish on the Philippines for this year and the following years,” Sturmey said in a Feb. 5 interview in Manila.
Foreign investors purchased a net $819 million of shares in Asia’s 12th-biggest stock market this year, 120 percent more than during the same period a year ago, according to Philippine Stock Exchange data compiled by Bloomberg. The nation of about 100 million people recorded $2.5 billion of inflows last year, the most since Bloomberg began tracking the data in 2000.
Growing confidence in the economy is also boosting the nation’s currency and debt. The peso has appreciated 5 percent against the dollar during the past 12 months, the most in emerging markets, and reached the strongest level since 2008 last month at 40.55 to the dollar.
Economic Growth
Yields on local-currency debt, rated BB+ by Standard & Poor’s, fell to a record 3.76 percent on Jan. 28, according to the JPMorgan GBI-EM Philippines Index. The cost to insure government bonds, rated one level below investment grade, against non-payment for five years using credit-default swaps was 103 basis points yesterday, data compiled by Bloomberg show. That compares with 121 for Brazil, whose foreign-currency debt is rated two levels above the Philippines.
Philippine gross domestic product increased 6.8 percent from a year earlier in the fourth quarter, compared with 7.9 percent in China. The euro region contracted during the period, while the U.S. expanded 1.5 percent.
Aquino plans to boost spending to a record and seek more than $17 billion of infrastructure investments to spur growth of at least 6 percent this year. Projects to build a toll-road south of Manila and more than 9,300 classrooms have already been announced since he took office in June 2010.
The 53-year-old president has narrowed the budget deficit by cracking down on tax evasion and raising taxes on liquor and tobacco. The gap was probably 2.3 percent of GDP in 2012, Budget Secretary Butch Abad said in a Feb. 14 interview in Manila. That’s down from 3.5 percent in 2010, according to Philippine Department of Finance data.
Fighting Corruption
Aquino, who had a 66 percent approval rating in a January survey conducted by Pulse Asia, has also focused on reducing corruption. Renato Corona, the country’s top judge, was ousted in May for illegally concealing his wealth.
The Philippines was ranked 105 on Transparency International’s 2012 Corruption Perceptions Index, an improvement from 134 in 2010. A lower ranking signals less corruption.
“The macro environment looks very positive and the Philippines probably has the cleanest government in its history,” Alistair Thompson, deputy head of Asia Pacific ex- Japan equities at First State Investments in Singapore, said in a Jan. 16 phone interview. “Companies are very optimistic.” His firm oversees about $147 billion.
Philippine stock valuations already reflect the good news, according to Paul Chan, the Hong Kong-based chief investment officer for Asia ex-Japan at Invesco, which oversees about $713 billion.
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