Locals see opportunity in US$55 billion Philippine stocks rout

Jeepneys wait for commuters in Manila, the Philippines, on Sunday, April 9, 2017. (Bloomberg pic)

MANILA: Unfazed by a foreign-led selloff that wiped out about US$55 billion in Philippine stocks, some local individual investors are seeing opportunities to buy.

Rommel Songco, 45, who left his senior finance role at a telecom company and is now a full-time day trader, is wading through the worst back-to-back quarterly rout in a decade and picking up stocks he thinks were unduly sold.

“I have seen this happen before,” said Songco, who first started investing in the Philippine stock market during the Asian financial crisis more than two decades ago. “There are more opportunities now than at the start of the year when prices were elevated. Risks will eventually subside and cheap stocks will go up.”

Songco has purchased shares in two of the nation’s biggest conglomerates — GT Capital Holdings Inc. and DMCI Holdings Inc., both of which have both plunged more than 20% this year.

The Philippine Stock Exchange Index tumbled 9.9% in the second quarter, buffeted by a weakening peso, quickening inflation, and the brewing trade war between the US and China, not to mention the general selloff in emerging markets. The benchmark stock gauge entered a bear market in June, with valuations sinking to the lowest in 29 months. It rose 0.5% to 7,267.34 at the close today in Manila, extending gains for a third day.

“When markets are down, we remind retail investors that times of weakness are an opportunity,” said Julian Tarrobago, head of equities at ATR Asset Management Inc. “Savvy and aware retail investors come in while some people get emotional and stay out for fear of losing more money.” All seven brokerages surveyed by Bloomberg said retail investors are dipping their toes in the Philippine stock market with cautious optimism.

Overseas investors have withdrawn more than US$1.22 billion so far this year, already a record amount in annual terms. The Philippine benchmark gauge has lost more than 15% in 2018, making it one of the world’s worst-performing major stock markets.

“The risk-reward proposition for Philippine stocks is probably at its strongest in the past two years,” Tarrobago said. The stock market could see a significant rebound that could push up the benchmark index to where it was at the start of the year, he said.

Tarrobago, who helps manage the best performing stock fund in the Philippines this year, said the market is pricing in near-zero corporate earnings growth at a time when the nation’s economic growth remains among the fastest in Asia. He expects the 9.5% year-on-year growth in first-quarter core earnings to accelerate as bank profits improve with rising interest rates while strong residential and office demand sustain property earnings.

Robert Ramos, chief investment officer of East West Banking Corp., said market volatility could continue, even as inflation concerns ease, due to external headwinds ranging from accelerating global interest rates to the trade war. Global rather than local factors will determine how long Philippine equities will stay in a bear market, he said.

“These levels are attractive for long-term investors, but it won’t be smooth sailing,” said Ramos, who favours banks and property stocks. “There are concerns with local inflation and earnings but the bigger concern is global. We will be dependent on what developed markets will decide on trade and monetary policy.”

But Carla Beltran, a 24-year old marketing assistant, isn’t too concerned. She says the market plunge is the “best time” to make her first foray in equities. “It’s the best time to come in while prices are low, but I will still gather information so that I buy the right stocks,” she said.