PH stocks not as overvalued as it looks – analyst

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A CLSA equity strategist says higher earnings may justify the expensive price of Philippine stocks

OVERVALUED? An analyst says Philippine stocks may not be as expensive as they seem.

MANILA, Philippines – The Philippine stock market may not be as overvalued as it seems.

This is according to Christopher Wood, an equity strategist for brokerage and investment firm Credit Lyonnais Securities Asia (CLSA). “There’s a possibility that the earnings are better than forecasted, in which case, it’s not as overvalued as it looks,” he said in a media briefing on Monday, April 15.

“The key issue right now is, we’re coming up to earnings season. The key issue of the next month is whether the earnings would meet expectations.”

According a CLSA research paper co-authored by Wood, the Philippines has “the most expensive stock market in Asia on a prospective price-to-earnings basis.”

Based on 40 local companies covered by CLSA, Philippine stocks are valued at 19.6 times estimated 2013 earnings. The figure is much higher than the average for companies in the Asia Pacific minus Japan, which is pegged at 12 times estimated 2013 earnings.

“Still a constructive view is maintained on the market, with the likelihood that earnings growth surprises on the upside in 2013,” the paper read.

Wood identified overvaluation “as the only real risk” to Philippine growth in the short-term. He added that he is advising fund managers to hold Philippine stocks for the long-term and keep an eye out for corrections.

Political stabiity

Wood said that political stability, due to the fact that the next presidential elections are still over 3 years away, has partly caused the stock market’s overvaluation.

“People don’t have to worry about a presidential election until 2016. That’s an important point… In the Philippines, you don’t appear to have a real political issue until 2016,” he said.

“The main risk to the macro story will come at the time of the next presidential election since Philippine presidents, as a result of the legacy of the Marcos dictatorship, are only allowed 1 6-year term. But that, fortunately remains more than 3 years away with the next presidential election not due until May 2016. That is why President Aquino still has ample time to implement his infrastructure program,” the paper read.

Wood said that this where the Philippines holds an advantage against its neighbors.

He cited Malaysia where a victory for the opposition could hurt economic growth. Indonesia, on the other hand, is grappling with uncertainty over its next leader. In Thailand, the possible return of former prime minister Thaksin Shinawatra could drive down its economy. “The market would go down 30% in 5 minutes,” he said. 

The Philippine Stock Exchange (PSE) reached a new record high at 6,891.43 on Friday, April 12. Online brokerage firm COL Financial Philippines earlier projected that the bourse would breach the 7,400 mark in 2013. – Rappler.com

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