Philippine Stocks May Pick Up Into Year-End on Profits, GDP

(Bloomberg) -- Knocked off course by a host of negatives, the Philippine stock rally may be set to regain momentum into year-end on improvement in the domestic economy and corporate profits.

The Philippine Stock Exchange Index has breached the 8,000 mark 13 times this year only to fall back through, hurt by factors including the U.S.-China trade war and the MSCI’s index rebalancing. But holiday spending combined with cooling inflation, a stronger peso and a GDP boost from increased state spending provide reasons to be hopeful, investors say.

“We could still see a Santa Claus rally,” said Alan Amador, who helps manage 25 billion pesos ($494 million) and this year’s best-performing Philippine equities fund at Insular Life Assurance Co. There’s a “stronger possibility” for the PSEi to reach 8,400 given good third-quarter earnings and “building anticipation that the last quarter could even be better,” he said.

Earnings per share of companies in the benchmark index grew 22.6% in July-September, picking up the pace from 16.7% and 13.5% in the preceding two quarters, according to Rachelle Cruz, an analyst at AP Securities Inc. She said the third-quarter earnings should help push the PSEi to the 8,200-8,400 range by the end of the year.

“Banks and property could probably still outperform because of earnings visibility,” Insular’s Amador said. “Consumers names will probably be a mixed bag but still should be a good bet” in the holiday period.

The benchmark gauge has slumped more 4% from its recent peak of 8,216.68 on Nov. 5, as overseas investors were net sellers for eight straight days through Friday. The retreat continued on Monday, with the gauge down for a fourth day, slipping 0.7 even as overseas funds turned net buyers.

The sell-off should taper as international investors complete adjustments related to the MSCI’s increased weighting of mainland China shares at the expense of other markets, said Cristina Ulang, head of research at First Metro Investment Corp.

“This is a temporary and healthy correction brought in part by the MSCI rebalancing,” Ulang said. “These dips are windows to buy into the 2020 growth recovery story. GDP and corporate earnings are accelerating. The trajectory is clearly upwards. What can hold back investors from coming back is an escalation of the U.S.-China trade war.”

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

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler, Naoto Hosoda

©2019 Bloomberg L.P.