Stocks near 7-yr high on foreign buying

this story was taken from www.inq7money.net
URL: http://money.inq7.net/topstories/view_topstories.php?yyyy=2006&mon=05&dd=09&file=1

Posted: 1:28 AM | May 09, 2006
Elizabeth L. Sanchez
Inquirer

SHARE prices Monday surged to a nearly seven-year high as foreign investors stepped up buying, with sentiments buoyed by the country's bright economic prospects, improving government finances, solid corporate earnings, low interest rates and relative political calm, analysts said.

The 30-company Philippine Stock Exchange Index jumped 118.93 points, 4.8 percent, to 2,589.17 after touching 2,602.46. It was the index's best finish since July 13, 1999, when it hit 2,604.49.

The index has risen a hefty 14 percent over the past five trading sessions. Even so, investor interest remains unabated, with P5.3 billion worth of shares traded on Monday compared with Friday's value turnover of P4.9 billion.

"This is just the beginning," said Paul Joseph Garcia, chief investment officer at ING, adding that the medium- to long-term trend was up.

"This is an indication that, one, finally investors are recognizing that the Philippines is back on the radar screen and, two, that the Philippines is an improving story on the macroeconomic front," Garcia said.

JP Morgan heralded the current period as the "start of a new era" for the Philippines and said it had upgraded the country to an "overweight" in the Asia-Pacific stock markets.

The bulk of Monday's trade was driven by foreign investors who bought P3.77 billion and sold P2.15 billion worth of shares. Net foreign inflow reached P1.6 billion, with only the mining sector in the red, down 2.6 percent after hitting a record high in mid-April.

Since January, net foreign inflows to the Philippines of $163 million have caught up with the total inflow in 2005, according to Nomura data, and were higher than both Indonesia and Malaysia.

"What is surprising is the speed by which the market has gone up," said Edgar Bancod, head of research at ATR Kim Eng Securities. "It happened so fast that investors are buying like there is no tomorrow."

"Foreign interest has returned. They view the Philippines as a laggard play," said Mark Tan, Singapore-based director of Asian equities at UOB Asset Management, which has Philippine investments.

The Philippine market has "not performed as well as the rest of the Asian markets since the recovery in 2002," Tan said. "So there's probably a lot of catch-up going on right now."

The Philippine Stock Exchange, which has the shortest trading day in Asia at two-and-a-half hours, had been left behind by other exchanges in the region. Philippine stocks are trading at an average of about five times their expected 2006 earnings, cheaper than Thailand's 10.4 times and Indonesia's 12.2 times expected earnings, according to Reuters data.

Fundamental factors have started to improve, analysts noted.

The government revenue shortfall has been shrinking because of an increased value-added tax, and the administration of President Gloria Macapagal-Arroyo says it is on track to keeping the budget deficit within a 2006 target limit of P125 billion, 2.1 percent of gross domestic product, compared with the 2005 deficit of P146.5 billion.

"The Philippines is on track to reach a balanced budget by 2008 and a surplus in 2009," JP Morgan said.

Recent government financial reforms, most notably in the implementation of the expanded value-added tax, have inspired the administration to project a balanced budget two years earlier than the official target of 2010.

Fears of a coup plot against President Arroyo have also eased after last week's Labor Day demonstrations, traditionally a flash point for violence, passed peacefully.

JP Morgan said the next stage was a higher annual growth trajectory of 6.0-8.0 percent in gross domestic product, driven by the infrastructure and mining sectors, which are emerging from their lows and reclaiming their position as economic growth engines. The economy grew 5.1 percent in 2005.

"For now, strong growth in remittances [from overseas Filipinos] and BPOs [business process outsourcing operations) will continue to fuel domestic demand," said JP Morgan. "Favored cyclical plays are the property and banking sectors, which have already seen a turnaround."

Analysts said investors were encouraged to shift to equities since last week on news of lower interest rates, tame inflation and stable first-quarter corporate earnings.

Investors cheered a government report that the inflation rate -- the year-on-year increase in consumer prices -- slowed to 7.1 percent in April from 7.6 percent in March.

"Inflation was lower than expected despite higher oil prices. And with a stronger peso, this boils down to a favorable sentiment in the market," said Fitzgerald Aclan, head of research and strategy at BDO Trust.

Money also continues to pour into the stock market as interest rates remain at low levels. Last week, the central bank kept its interest rates steady for the seventh straight month in line with its assessment that inflation would slow down starting in the second semester.

The central bank's overnight borrowing rate stayed at 7.50 percent and its overnight lending rate at 9.75 percent.

Lower interest rates mean prospects of better corporate earnings as companies can borrow more cheaply to fund expansion moves.

"We are looking at a 15-percent growth in earnings in the next two years," said Jerome Gonzalez, head of research at fund manager Philippine Equity Management Inc. "With the fiscal reforms in place, the peso strong and interest rates low, even banks now are finding it hard to find good yields and are shifting to equities. The market is very liquid."

"Even laggards in the index are being bought," said Mark Canizares, analyst at Citisecurities Inc. "There should be corrections, but the short-term and long-term trends still point up and the market is actually breaking into new highs."

Garcia, who sees the next key resistance at 2,700 points, said the biggest short-term risk was the possibility that opposition leaders could try to revive last year's failed impeachment attempt against President Arroyo, although many analysts expect her allies in the House of Representatives to defeat any impeachment bid.

The banking and property sectors have been particularly buoyant after the central bank decided to hold fire on borrowing costs -- but gains have been well spread amid solid first-quarter corporate earnings.

Leading the stock market bull-run Monday were blue-chip stocks such as Philippine Long Distance Telephone Co. (PLDT), Bank of the Philippine Islands (BPI), Ayala Corp. and Metropolitan Bank and Trust Co. (Metrobank).

PLDT, the country's biggest telecom company, rose 6 percent to P2,255 per share. Ayala Corp., the largest conglomerate with interests in banking, telecom and property, rose P42.50, or 9.8 percent, to P472.50.

Metrobank, the largest bank in assets, rose 10.6 percent to P47, while its rival BPI rose 4.4 percent to P71.50.

SM Prime Holdings Inc., the country's largest mall developer and operator, on Monday said its first-quarter profit rose 8 percent as the higher sales tax failed to crimp consumer spending. Its shares jumped up 11.11 percent to P9. With Reuters, The Association Press, and INQ7.net