Phl equities market seen weakening in next few mos

MANILA, Philippines - The Philippine equities market may weaken in the next few months, prompting British banking giant HSBC to downgrade the country’s equity expectation from overweight to underweight.

HSBC head of Equity Strategy for Asia Pacific Herald van der Linde, in a second quarter Asia Equity review, said while the macro environment remains supportive, the recent market run raises valuations while lowering yield.

In explaining HSBC’s decision to lower its equities’ expectation for the coming months, Van der Linde said “while the Philippines’ macro story remains intact, the recent market run has further raised the already high equity market valuations.”

“An even bigger risk is a tighter monetary stance later this year due to lingering inflation risk,” he said.

“The stock market is small and heavily concentrated in a handful of liquid stocks, which limits investment options,” he said.

He said that the market had already benefitted from strong investment inflows in 2011-2013. 

“It is the second most owned market in the region by mutual fund investors, which increases the risk of negative surprises later,” he said.

Van der Linde cited HSBC economist Trinh Nguyen’s earlier projection for the economy which iniducate a 5.9 percent growth in 2014 and 6.1 percent in 2014. 

“Future prospects look bright, backed by gradual acceleration in fixed investment growth,” he said.

However, he said a weaker peso, slower net capital inflows and inflation risks are likely to keep the growth rate in check. 

“This means that although improved global demand will support export growth, import costs will dampen GDP growth rates by dragging down net export growth,” he said.

But, overall, the HSBC official said business and consumer confidence levels remain quite buoyant and domestic consumption strong, supported by resilient overseas foreign worker remittances from some 8.5 million overseas workers.

Van der Linde said in the long-term, the Philippines would remain a good investment choice.

“In the next 10 to 20 years, the Philippines (investment climate) should be good,” he said.

In the near term, however, there remains some concerns which need to be looked into. 

“We expect the BSP to maintain a tight monetary stance as inflation is expected to linger on the higher side,” he said.

From a bottom-up perspective, she said they are excited about the local consumer sector. 

“Modern retail formats like convenience stores and hypermarkets that are growing from a low-base have substantial multi- year growth potential. We also like areas of BPO, infrastructure development (power, water, highways) and tourism, which will likely see continued investment growth,” he noted.