Philippine Stock Exchange Gets Merryl Lynch's Approval

Just when you thought that we are all down in the dumps....


Stock market looking good, says Merrill Lynch
By Doris Dumlao
Philippine Daily Inquirer
First Posted 04:35:00 07/26/2008

MANILA, Philippines—The Philippine stock market is looking more attractive these days to investors on the hunt for bargains, a top strategist at American investment banking giant Merrill Lynch said.

The Philippines is in a better position to attract investors again than India, which has also suffered heavy stock market sell-offs because of surging oil prices over the recent months, Stephen Corry, head of investment strategy at Merrill Lynch (Asia-Pacific) Ltd., told the Philippine Daily Inquirer in an interview.

The Hong Kong-based Corry added that the central bank, Bangko Sentral ng Pilipinas (BSP), had effectively convinced the market of its commitment to prevent runaway inflation after jacking up its benchmark interest rate by 0.50 percentage point last week, double the 0.25 point expected by the market.

“Some Asian central banks are more proactive than others and those that are proactive will ultimately be rewarded with higher currencies, better fixed income markets and potentially higher equity markets once the US market find its floor,” Corry said.

He noted that Vietnam, where the inflation rate had risen to 27 percent as against only seven percent recorded at about this time last year, stood out as a clear example of not being proactive.

“Investors have lost faith in the credibility of the central bank and repatriated their money out of the country, that’s why equity prices [in Vietnam] are down 50 percent year-to-date,” Corry said.

By contrast, he said the hefty interest rate increase by the BSP last week lifted peso value versus the US dollar, narrowed the credit spreads and also perked up the equity market.

The Philippines’ main-share index has trimmed its year-to-date losses this year to 30 percent from as high as 35 percent, he noted.

“Definitely, it’s a step in the right direction,” he said.

Although most investors would still currently prefer to hold on to cash than return to Asia-Pacific stock markets, Corry said the Philippines was one of the markets where there are ample opportunities for bargain-hunters.

“What gets me excited about the Philippines first of all is that the price-earnings multiple is less than 10 times. That means that chance of further derating [values falling] is minimal,” Corry said.

The lower the price-earnings ratio, the less expensive it is to accumulate stocks of that company.

Corry said the problem, however, was that corporate earnings among companies traded on the local stock exchange were now running flat to 5 percent or slower than Merrill Lynch’s forecast of 10-15 percent early this year.

“But I always believe it’s easier to buy when everyone else is selling rather than when everyone is buying. So, I think the Philippines is beginning to be interesting. It’s one of our overweight (an investment strategy to accumulate a certain asset) markets,” he said. With editing by INQUIRER.net

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