Philippine equities will likely see a period of calm in the fourth quarter following setbacks in the July-September period, analysts said, although the last month of the year could see increased outflows ahead of a US interest rate hike.
“We see calmer markets for the month of October and November as the delay in Fed rate hike and weak September US jobs data provide breathing room – resulting to a slower pace of foreign fund outflows,” investment bank First Metro Investments Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in the latest edition of The Market Call.
“We could see outflows … pick up pace in December or closer to the last FOMC (Federal Open Market Committee) meeting in 2015,” they added.
“We continue to have a constructive view on Philippine equities as economic growth and earnings outlook are brighter in the next 12 months boosted by election spending.”
Investors may experience a hit as soon as a Fed rate hike commences, but such effects will likely “run out of steam” given the likely impact from election spending.
“Foreign outflows could run out of steam after the long-awaited Fed rate hike – setting up for a potential election rally,” FMIC and the UA&P said.
The Philippine Stock Exchange index (PSEi) slumped by 670.5 points or 8.9 percent in the
third quarter, largely due to market uncertainties traced to Greece and China, unstable peace in Ukraine, as well as global growth concerns.
The analysts noted that the PSEi and US’ Dow Jones Industrial Average were “closely correlated”, showing the local bourse’s vulnerability to global uncertainties given a large mass of foreign investors.
Foreign investors were still bearish in the third quarter, with foreign net sell-offs hitting P59.4 billion from P29.6 billion April-June. This was mostly due to extensive foreign net selling in September at P33 billion.
FMIC and the UA&P said they still favored “defensive stocks”, adding: “We also like stocks that can leverage on election spending. And lastly, be on the lookout for index glamour names with undemanding valuations.”
Companies said to be poised to leverage on election spending include firms exposed to staples (groceries), beverages (alcoholic and non-alcoholics), tobacco and fuel.
In terms of sectors, all declined in the third quarter except for industrial sector, which rallied 7.8 percent from a 10 percent decrease in the previous quarter. Mining and oil had the steepest drop at 21 percent.
Total turnover growth was at negative 6.5, an improvement from the 13.7 percent decline in the second quarter.