RP cited among top ‘emerging markets’

Global financial giant ING has picked the Philippines as one of its top three investment sites among emerging markets this year, with prospects for economic growth appearing supportive of corporate earnings. "I think we should pick it [the Philippines] again," Nicholas Toovey, regional head of equity of ING Investment Management (IIM) in the Asia Pacific, Friday told a press briefing. In the Dutch financial firm’s investment outlook for 2007, the Philippines was joined by Hong Kong and Malaysia as top destinations of fund inflows. Last year, ING listed the country as among the top three attractive investment sites, along with Taiwan and Hong Kong. ING Investment Management chief investment officer Paul Joseph M. Garcia forecast returns on Philippine equities to hit 20% this year noting that the composite index has started to show signs of pulling again towards an all-time high of 3,300 recorded in 1996. ING expects the composite index to test 3,500 towards the last quarter. A year for Equities "Market fundamentals are supportive of corporate earnings growth. We prefer equities over bonds this year," Mr. Garcia said. ING forecast the economy to pick up by 5.5%, owing mainly to an anticipated increase in government spending with the eventual passage of the proposed 2007 national budget of P1.126 trillion. "The budget passage will make the government pump-prime the economy," Mr. Garcia said, noting that infrastructure expenditures are likely to account for 3%-4% of the gross domestic product this year. "There will be some catching up of the government on spending through 2010, and that will be supportive of corporate stocks, infrastructure-related and cement-related stocks," he added. ING also gave a rosy view on consumer-related stocks as well as stocks in the telecommunications sector, which are likely to benefit from heightened spending during the election season, ING said. "The elections would boost consumer spending," Mr. Garcia said. While investors may not earn much from bonds, a prevailing low-yield environment also bodes well for corporate debts which should help boost earnings, he explained. Growth Drivers For its part, brokerage CitisecOnline sees the Philippine Stock Exchange index matching or breaching its all-time high this year on the back of high Asian liquidity conditions, the government’s structural reform program and sustained investor confidence in the stock market. In an investor seminar, themed: "Philippine Market Outlook 2007," in the Philippine Stock Exchange auditorium in Ortigas, the firm’s research team said equities would continue rising, but would show greater volatility this year. CitisecOnline identified three main growth drivers for the year, namely: a revival in public and private investments, new credit cycle expansion and asset reflation. "The passage of the growth-oriented 2007 budget will trigger public investment," the brokerage said. At the same time, the weakening dollar will cause investors to move their domestic savings away from US dollar deposits and into peso assets. "Low interest rates and an appreciating peso will boost the risk appetite of local savers towards property and equities," the firm said. In a report, the brokerage said it expects banking, property, power and construction companies to perform this year. The banking sector is likely to see an increase in revenues from loans. CitisecOnline expects consumer loans to be among the strongest loans amid falling savings deposit rates, improving income levels and improved consumer confidence. CitisecOnline expects the Metropolitan Bank & Trust Co. (Metrobank) and the Banco de Oro Universal Bank (BDO) to be among the top lenders. Meanwhile, construction companies will be the biggest beneficiaries of the government’s infrastructure program. The firm’s top picks include the EEI Corp., Holcim Philippines Inc., and DMCI Holdings Inc., based on their technical performances over the past year. The property sector will benefit from increasing affordability and better payment terms from lower interest rates. CitisecOnline projects Ayala Land, Inc. and Robinsons Land Corp. to be the main gainers for the year. The power sector will benefit from the government’s plans to privatize its government assets. "This will lead to [a] potential upgrade in earnings and [the] revaluation of assets," said the report. It noted that the privatization could yield up to $2 billion this year. Its top picks are the Philippine National Oil Co.-Energy Development Corp., First Gen Corp., and First Philippine Holdings Corp. But the brokerage said the composite index was due for a major correction soon, after recording 42.29% year-on-year growth at the end of 2006. "Its striking advance has elevated its trend angle to a sharp degree that can only be durably maintained with adequate corrective motions." The report said the index could see two or more major corrections that would diminish, but not curb, the index’s long-term uptrend. A correction could bring the index to as low as 2,650 or 2,438. At the same time, the firm said factors such as political uncertainty or the non-passage of the 2007 budget could profoundly influence the market’s performance this year. A reversal of the global appetite for risk could also turn investors’ attentions away from equities. — M. E. I. Calderon and A. E. Lalisan/BusinessWorld