(Bloomberg) -- Philippine bulls are on a roll, and who can blame them? The nation’s equities index has started the year beating many global peers, and foreign fund managers are putting back money in a market that was among Asia’s worst in 2018.
Traders at Rizal Commercial Banking Corp. and AB Capital & Investment Corp. are riding the rally by deploying their cash, rather than cutting their stock holdings as they did last year whenever equities went into high gear. The Philippine Stock Exchange Index’s 3.2 percent rise in the first five trading days of January has enough momentum to break through 8,000 this quarter, they said. That’s another 3.9 percent gain from Tuesday’s close.
“It’s a good strategy to ride the prevailing positive mood, even if only for the short term,” said Gerard Abad, who manages $380 million as chief investment officer at AB Capital. “We will see a continuation of the improvement in inflation, and it helps that the U.S. Fed has become dovish. That eases pressure on the central bank to raise rates.”
The optimism stems from encouraging inflation data -- it slowed for a second month from a nine-year high, reaching its slowest pace since May -- and prospects that the Federal Reserve will ease interest-rate increases. That’s brought down the U.S. dollar from a high, prompting foreign investors to come back to the Philippines: They’ve already pumped in $49 million in equity funds this year, including the longest streak of daily inflows in five months, after $1.08 billion of withdrawals in 2018.
“Sentiments are very bullish,” said Rizal Bank trader Steven Ko, who helps manage about $1.72 billion. “We are taking profit in some of the leaders, but rotate the money into stocks that will outperform as the climb to the 8,100 to 8,200 level is quite possible from here.”
Ko is looking for market laggards, with a preference for banks and consumer-related shares on expectations margins will improve and earnings will grow. Abad, who in addition to those sectors also likes property, is withdrawing from mid-cap stocks and putting the money into the market’s biggest companies, which he expects will propel the nation’s benchmark index higher.
Yet he recommends to “cut exposure” should the Philippine equity index break the 8,200 to 8,300 level, which he sees as likely. With the prevailing bullish sentiment, and should fourth-quarter gross domestic product data show a pick up in growth, the gauge could even hit 8,400, he said.
“It won’t hurt to be conservative and top slice if the market rallies too fast, too soon,” Abad said. “It’s better to wait for first-quarter earnings for confirmation of whether this rally is standing on fundamental legs.”
Optimism for earnings growth is renewing interest from overseas investors and helping support valuations, Ko said. That’s even though, at 16 times projected profit for the next year, they remain among the highest in Asia.
“It’s too early to say if the foreign-fund inflow is a reversal of last year’s withdrawals, but definitely there is some interest in emerging markets and the Philippines,” Ko said.
