PHL stocks' valuations worrisome — Goldman Sachs

“Love the story, hate the valuations.” That was how Goldman Sachs managing director for global investment research Christopher Eoyang described the Philippine Stock Exchange. Goldman Sachs sees Philippine stocks continuing their climb this year, but the local bourse may no longer become the best performing in Asia given its high valuations. Eoyang said the Philippines has a “good economic story” that attracts investors, but claimed equity valuations have become too expensive. The local bourse is priced at “a premium over regional average,” he said, citing the PSE’s price-to-earnings ratio of 21 times which is 80 percent more than the regional average. This means that investors were paying 21 times more for every peso of earnings in the next 12 months. Given the expensive valuations, a 50- to 100-percent annual increase in corporate incomes should make Philippine shares “to deliver,” he said. Thus, Goldman Sachs is underweight on Philippine shares, meaning it advises investors to lighten up holdings of Philippine equities in favor of other bourses.  “We’re not negative on the Philippine market, but other markets may have a better upside,” clarified Eoyang. Korea and China – which Goldman Sachs is overweight on – have price-to-earnings ratio of six and eight times, respectively. “So, the increase in other markets may be larger,” Eoyang said. Other than the “crazy valuation” firms listed in the local bourse, investors are also wary of illiquidity in the domestic equities mart, Eoyang said. He said the PSE’s volume averages at $270 million a day – half of Malaysia and Indonesia, and an eighth of Thailand’s. “We would argue that the Philippines is still in the early stage of the deepening of the markets process,” Eoyang said, adding that listing more companies, which in turn increases free floats, would deepen the market. He said a 20- to 30-percent minimum public float would give real exposure to investors. The PSE currently imposes a 10-percent minimum public ownership. Eoyang, however, said any hike in public ownership base should be done gradually. — BM, GMA News