In search of better yields post-Brexit
PHILIPPINE share prices were buoyed by foreign buying in the aftermath of the British vote in June to leave the European Union, First Metro Investment Corp. (FMIC) said in a report.
As a result of the so-called Brexit, emerging markets including the Philippines have benefitted from foreign portfolio investment in search of higher yields.
The uncertainties brought on by the Brexit made emerging markets quite attractive to foreign fund managers.
Rabboni Francis B. Arjonillo, president of FMIC, said the inflows from passive foreign funds might stretch into the coming months.
“Lofty valuations could remain longer than so far assumed on the premise that passive fund inflows persist, which hinges on the US Fed rhetoric and action,” Arjonillo noted.
“We think emerging market (EM) equities have become alternative investment channels in the face of rising uncertainty in developed markets (DM),” Arjonillo said in “The Market Call,” FMIC’s capital markets research report released on Friday.
“Second quarter 2016 earnings results [came]to light [since]early August, but while they are important, post-elections earnings performance has more relevance in our view moving forward,” he added.
Despite market volatility, the bellwether PSEi gained 2.1 percent or 166.9 points in July and brought the main index to a year-to-date high of 8,102.3 on July 21.
The victory obtained by the Philippines in a ruling by the Permanent Court of Arbitration in The Hague over West Philippine Sea elicited a wave of positive sentiment from foreign investors.
On top of that was the bullish sentiment lent by the pronouncements of President Rodrigo Duterte regard the economy.
However, Arjonillo noted certain risks in the second half of 2016. He cited the low turnover in August, being the traditional ghost month, as well the US Presidential elections in November and the potential interest rate hike in the world’s largest economy in December.
FMIC is pointing to the consumer staples sector, high dividend stocks, and shares with low price-to-earnings (PE) ratios or growth stocks. “In short, greater selectivity would be in order,” according to the investment bank.
FMIC data showed two of the sectoral indices—services and mining and oil—declined in July.
The services sector lost 1.1 percent after an 8.9 percent surge in June, due to the sharp decline of Bloomberry Resorts Corp. after posting a hefty gain of 58.1 percent in June. The mining and oil index dipped by 0.5 percent.
The property sector led the gains, up 4.2 percent on positive performance of Robinsons Land Corp., Megaworld Corp., SM Prime Holdings Inc., and Ayala Land Inc.
The financial and holding firms advanced by 3.6 percent and 3.2 percent, respectively, on the back of Metropolitan Bank and Trust Company and BDO Unibank Inc., and conglomerates Alliance Global Group Inc., Metro Pacific Investments Corp., San Miguel Corp., DMCI Holdings Inc., SM Investments Corp., and GT Capital Holdings Inc.
The Industrial sector rose by 1.8 percent in July, led by Energy Development Corp. with an array of approved developmental projects.
The total turnover rose by 5.4 percent last month from 2.6 percent in June. Net foreign buying totaled P16 billion from P14.5 billion in June and P10.6 billion in May.
FMIC is the investment bank of the Metrobank Group, owned by businessman George Ty. It specializes in the equity and bond markets.