BPI unit keeps 6,800-7,000 PSEi target

MANILA, Philippines - The Bank of the Philippine Islands – Asset Management Group (BPI-AMG) is maintaining its 6,800 to 7,000 outlook of the Philippine Stock Exchange Index (PSEi) by the end of 2013.

An appreciating peso due to a weak US regime coupled with seasonal fourth quarter increase in overseas Filipino remittances should attract the attention of foreign fund managers.

Foreign fund managers are expected to revert back to a ‘hunt for yield’ strategy now that tapering will more than likely be postponed.

At the end of the third quarter, 71 percent of the retail money moved into emerging markets (EM) equities and bonds since the end of the Global Financial Crisis left.

Aside from tapering concerns, funds are currently underweight in EM Asia due to the balance of payment concerns attributable to China’s slowdown. The situation is about to reverse after India, Thailand and Indonesia raised their interest rates and slowed their economies.

Downside risks to Korea and China are equally limited since global funds rotating out of rate cyclicals and shifting into consumer names but not reducing their holdings.

BPI asset managers expect the Bangko Sentral ng Pilipinas (BSP) will keep system wide liquidity at current levels amidst expectations of low inflation heading into 2014. 

Inflation is expanding to 3.5- to four percent year on year in 2014, due to base effect rather than an over heating economy. This is well within the BSP’s range of three- to five percent and should result in a significant shift in monetary policy.

“Correspondingly, we expect at least three- to five percent (roughly P60 billion -P100 billion or 12.5 days of trading) of the SDA funds will find its way to the stock market by virtue of the low rates on offer for capital guaranteed products,” they added.

Also positive factors are the initial public offerings (IPOs) of Robinsons Retail ($650 million), Traveller’s Inter ($500 million) and Del Monte Philippines ($150 million) in November.

These would easily be absorbed by local funds, most of which have 10- to 15 percent of their portfolios in cash leading up to the conclusion of the debt ceiling debacle.

BPI is raising its equity exposure to overweight from slight overweight. But it is reducing position in issues trading at more than a 50-percent premium to the market and taking advantage of any dips to accumulate issues with good dividend yields as well as value (telecommunication and consumer sectors).

The fund managers remain overweight but still below maximum to maintain some liquidity in anticipation of ‘tapering neurosis’ once again dominating investor sentiment in the first semester of 2014.

Any amount of tapering will cause long-term rates to rise and correspondingly mortgage rates to rise as well.