Philippine Stock Bulls Unfazed Amid Sharpest Drop in Six Weeks

(Bloomberg) -- The bull run for Philippine stocks still has legs amid tailwinds of stronger corporate earnings, cooling inflation and continued monetary stimulus.

The benchmark Philippine Stock Exchange Index entered the bull market on Monday after climbing more than 22% from a November low. The gauge is now the best performer in Southeast Asia and one of the top gainers in Asia this year. The surge was also propelled by a stronger peso, which has been among the best performing currencies in the region. The equities index shed 1.2% at the close Tuesday, the biggest loss in six weeks.

“This is a healthy pullback considering the backdrop of favorable fundamentals from slowing inflation and prospect of further monetary easing," says Cristina Ulang, head of research at First Metro Investment Corp. “It’s a good opportunity to add names that have earnings growth visibility."

Foreign investors have returned to the market -- which was among the worst performing last year, pouring more than $455 million into equity funds this year. That improvement was partly due to fund inflow after investors finished adjusting allocation on the back of MSCI Inc.’s expansion of China weighting in some of its benchmarks.

“After building momentum in the last two months, the market has convincingly broken the ceiling at 8,100 and it looks like there’s still enough gas in the tank for it to move higher,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. “Some of those who were hesitating jumped in for fear of getting left behind.”

The nation’s market was roiled by the U.S.-China trade war, escalating inflation and a weakening peso last year. Foreign investors pulled over $1 billion out of the nation’s stocks in 2018 -- their biggest withdrawal in three years, according to data compiled by Bloomberg.

A double digit growth in second-quarter earnings at SM Prime Holdings Inc., the nation’s largest shopping mall operator, supports expectations that household spending has recovered and corporate results will be better than the first quarter, according to Ravelas. SM Prime fell 0.6% Tuesday, after soaring 3.1% on Monday.

Stronger corporate earnings combined with falling inflation and a less tighter monetary condition will help propel the index to 8,500 in the near term, he said.

All but three of the PSEi’s 30 components have gained since the low in November with JG Summit Holdings Inc. and First Gen Corp. surging more than 60%. About half of the gauge lagged the index’s 21% gain from the November-low through Tuesday, including SM Investments Corp. and Jollibee Foods Corp.

While the bull market will be well supported with valuation still at “reasonable“ level, “investors should rotate money from the winners to the laggards as the round of portfolio adjustments that will come with changes in the MSCI in August will provide headwinds and temper gains,” said Miguel Ong, analyst at AP Securities Inc.

--With assistance from Matt Turner.

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

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, Lianting Tu

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