Top Fund Managers Call Time on Philippine Property Share Rout

(Bloomberg) -- Philippine property stocks’ worst year-opening performance in a decade is starting to lure buying by the nation’s top equities fund managers.

Noel Reyes, chief investment officer at Security Bank Corp., and Julian Tarrobago, head of equities at ATR Asset Management Inc., are raising their holdings of real estate stocks following a selloff fueled by rising inflation and prospects of higher interest rates. Reyes’s SB Peso Equity Fund has returned about 14 percent in the past year, the best performing Philippine equity fund, while Tarrobago’s ATRAM Alpha Opportunity Fund has returned nearly 10 percent.

“The general narrative is fundamentally sound for property,” said Tarrobago, a bull on the sector even before the slump this year. “This a golden opportunity to buy quality property companies on weakness.”

The Philippine Stock Exchange Property Index has slumped more than 10 percent this year, its worst annual start since 2008. The broader Philippines Stock Exchange Index has fallen 9.8 percent year to date, the world’s worst performer. After benchmark-beating gains for the past four years, the property gauge has been hit by concern that higher mortgage costs will curb sales, as the central bank is likely to raise interest rates to cool mounting inflation.

Tarrobago said he believes that further consumer price gains will be within manageable levels and that interest rate adjustments won’t scare off buyers. The ATR fund manager’s top picks include Ayala Land Inc., SM Prime Holdings Inc., Megaworld Corp. and Vista Land & Lifescapes Inc.

While the prices of real estate stocks have dropped dramatically, Manny Cruz, an analyst at Asiasec Equities Inc., warns against rushing into an acquisition binge.

“The property sector will still see some downward pressure as higher interest rates will spill over to affordability, and that could slow down reservation sales,” Cruz said. “The heyday for property stocks could already be over.”

Security Bank’s Reyes said that while real estate prices have risen, consumer purchasing power should catch up as the economy continues to expand. Underweight on the property sector entering the year, Reyes says the selloff has been “quite excessive” and now is the time to start buying.

“The economic outlook hasn’t changed, and valuations of property stocks have fallen so that it’s now worth it to slowly come in and dip your toes,” Reyes said. He prefers builders with diverse projects and land bank like Ayala Land, and is also considering smaller Filinvest Land Inc. because of its new development north of Manila.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Kurt Schussler, Naoto Hosoda

©2018 Bloomberg L.P.