Asset managers and buy-side traders say their positive view on the economic outlook of the Philippines – and their allocation towards its equities – are unchanged despite the calamities caused by super-typhoon Haiyan.
The most powerful storm ever to hit the country swept across Tacloban in the eastern region of Visayas late last week. President Benigno Aquino says the estimated death toll could be up 2,500; far lower than the initial estimate of 10,000.
“Valuations of Philippine equities are not cheap, so if stock prices come down it would be more interesting from an investor perspective,” says a Kuala Lumpur-based portfolio manager. “So far, however, the stock market has not come down significantly on the back of the disaster. It would appear that investors have already looked past this event.”
The Philippines is currently seen as one of the more expensive markets in Southeast Asia, with the benchmark PSE Composite Index trading at about 18.27 times price-to-earnings. The PSEi fell 1.26% on Friday and a further 1.42% on Monday, before climbing 0.94% on Tuesday, since when it has been almost flat.
Michael Wan, an analyst at Credit Suisse, says he is not changing his 7.2% full-year GDP growth forecast for the Philippines. The most affected area, eastern Visayas, which is dominated mostly by agriculture, only accounts for 12% of the entire nation’s GDP, he adds. “I expect the impact on overall headline GDP growth to be quite small, at around 0.5%.”
(The Philippine finance minister was quoted as saying this week that GDP growth could be hit by as much as 1% in 2014.)
In the week to date, foreign institutional investors pulled $26.7 million from Philippine stock and a total of $95.6 million from November 1 to 14, according to Bloomberg data. Year-to-date the country has seen a net inflow of $860.8 million.
“The typhoon has not affected our views on the sectors we are interested in; the country’s long-term potential remains intact,” says one Singapore-based portfolio manager. Investors will continue to favour the consumer sector, he adds.
The premium investors are paying now for Philippine stocks compared to those elsewhere in Southeast Asia is justified by strong corporate earnings, says Michael Gerard Enriquez, Manila-based chief investment officer for Asia at insurer Sun Life Financial.
Over the past six months, the Philippines financial sector has seen the biggest upgrade (close to 20%) from a broker consensus on its earnings per share out of the 20 sectors tracked in a research report issued in October by Credit Suisse. The next two biggest risers were Japanese insurance and Malaysian real estate, respectively.
“[The typhoon’s impact] will be negative for power companies with power plants in the affected areas, but positive for infrastructure- and consumer-related sectors due to the rebuilding process [that will be needed],” he says. Two listed companies with power plants in the affected area include Energy Development Corp and Aboitiz Power.