A heightened regulatory and environmental risk is dragging the prospects of the Philippine equities market vis-a-vis its counterparts in the region, making it an exception in the growing attractiveness of emerging markets around the world, online brokerage firm Colfinancial.com said.
April Tan, Colfinancial.com, head of research, said the Philippine MSCI ETF is currently down 7.16 percent compared with the 8.47 percent gain of the MSCI Emerging Markets ETF since last year.
Tan said the recent tirade of President Duterte over existing concession contracts in the water sector and an order to review the contract in the light rail transit, which is also owned by the same entity in the water concession, appears to have heightened investor concerns for the Philippines despite a “too robust” economic outlook of the country.
“The tide is shifting for emerging markets, but not for the Philippines. While our fundamentals are ‘too robust to ignore’, we are also facing certain issues that are hurting foreign investor sentiment. These include heightened regulatory and environmental uncertainties, and growing irrelevance of the Philippine market in the emerging market basket,” said Tan.
Tan said the Philippine Stock Exchange has the potential to hit 9,000 given its “favorable” economic outlook but quantifying such outlook is difficult given investor sentiment.
“Nevertheless, we are confident that the Philippines will eventually overcome these issues and as such, continue to recommend investors to buy Philippine stocks,” she said.
Tan said the optimism over the Philippine economy’s fundamentals this year is anchored on the government timely passage of the 2020 budget; potential further easing of monetary policy, faster earnings growth and the PSE’s cheap valuations.
Since hitting 9,058.82 in Jan. 29, 2018, the PSE index (PSEi) had been on a downward trend and is currently down 17.55 percent as of Tuesday’s close of 7,468.7.
Tan said under the recently-signed 2020 General Appropriations Act early this month, government expenditure for infrastructure is up 12 percent.
There is also the market expectation that the Bangko Sentral ng Pilipinas will cut banks’ reserve requirement ratio (RRR) down from the current 14 percent.
At the same time, listed firms are expected to post an earnings growth of 12 percent.
Tan said given the current PSEi level, it suggests a price-to-earnings ratio fo 14.6x, which is still a far cry from the index’s five-year average of 17.3x.
“This means there is a 90-percent chance of making money if you believe in mean reversion to 17x PE,” said Tan.
The Philippines’ “decoupling” from the emerging markets’ trend, however, means foreign investors continue to avoid the country, according to Tan.
