Setbacks possible as investors focus on valuations — FMIC, UA&P study

The Philippine market could experience setbacks over the next few months as investors become more wary of high valuations amid robust growth, according to the latest joint research by First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P). In its “Market Call,” released on Tuesday, FMIC and UA&P noted that the Philippines is now entering a phase where "the market has started to put more emphasis on valuations" despite the country's new investment grade status. "While Philippine bond yields remain at record lows, the peso’s strength appears to be waning and foreign fund inflows have lost momentum. The market environment this created, where investors now take in hand fair valuations, may cause the market to struggle in the interim," it said. The report sees the concern as "legitimate," given the greater likelihood of a contraction in the country's price-to-earnings ratio (P/E) in the near term. Based on data from Reuters, the Philippines has the highest P/E among Asian equities, trading more than 20x as of April 29. The Philippines, Thailand and Japan are also "the toppers in Asia in price performance this year, in dollar terms." "South Korea is the worst performer in the region in price performance," the news agency added. On March 27,  Fitch Ratings upgraded the Philippines from BB+ to BBB-, which reflects an investment grade rating. However, though investors' strategies will be driven by the perception of fair value of Philippine equities, FMIC and U&AP said, "It is important to have a rational and process-oriented investment approach." "Avoid being overwhelmed by one’s emotions in this difficult backdrop. In the next 12 months, we remain constructive and will stay focused on opportunities ahead," the report said. — Danessa Rivera/BM, GMA News