MANILA, Philippines — Global insurance giant Sun Life of Canada sees emerging markets remaining out of flavor this year but the Philippines, backed by much stronger economic fundamentals, is seen in a good position to withstand global financial market volatility.
On equities, Sun Life sees the Philippine Stock Exchange rising by a modest 10 percent to around 6,500 this year.
“The Philippines is one of the better stories in Asia but it’s expensive,” Michael Manuel, managing director for Asia investments at Sun Life of Canada, said in a press briefing on Wednesday.
Manuel, a Filipino regional fund manager based in Hong Kong, said emerging markets have not seen the worst sell-off as global investors have only begun to catch up with the upswing in developed markets like the US, Japan and the Eurozone.
“In the case of the Philippines, if you look at it, it’s well-positioned to take on this hiccup in emerging markets,” Manuel said, noting that the country was on a much better fundamental footing compared to the last Asian turmoil that erupted in 1997.
Before 1997, Manuel said the Philippines was trying to fix its exchange rate at P26:$1. The country was afterwards forced to devalue its currency as a capital flight hit the region. Today, the country benefits from a floating exchange rate, according to Manuel.
Manuel said the Philippines has likewise been enjoying vast foreign reserves but said the Bangko Sentral ng Pilipinas (BSP) would not likely use up this ammunition to defend the local currency to address a temporary situation.
“It will not be immune to a currency weakening in global markets but as the outflows subside, it will get back to a stronger level,” Manuel said, adding that the country’s external surplus has been supported by a steady flow of overseas remittances unlike other emerging markets, which were dependent on portfolio flows.
Another big difference from 1997 has been the sound footing of the Philippine banking system at present, Manuel said. Previously, he said banks were crippled by high interest rates and a large stock of non-performing loans.
“From a prospective of emerging markets, you will see the Philippines react but I will take that as an opportunity to buy,” Manuel said, noting that the downward pressure on asset prices would lead to the mis-pricing of local assets versus fundamentals and therefore a chance to build up long-term position.
As such, he said price to earnings multiples (P/E) of Philippine stocks were not likely to rise significantly as what was seen in the past, suggesting that investors would not likely pay too high a price relative to projected earnings.
Manuel said P/E ratio of Philippine equities would only likely hug the long-term average of slightly above 15x. He sees 5,500 as a very strong support for the PSEi.
“I’m not saying the rally will pan out but it will be a slow rise from here,” Manuel said.
The PSEi has ended higher for five consecutive years beginning 2009.
Michael Gerard Enriquez, chief investment officer at Sun Life Financial Philippines, said the local stock barometer’s rise of about 10 percent this year would likely be supported by a 6-8 percent growth in earnings.
“We continue to like consumer and property sectors. In spite of threat of higher interest rate, we continue to see property markets continue to perform,” Enriquez said, adding that some upside earnings surprises may also come from the energy and utility sector.
Sun Life sees the BSP raising key interest rates by 50 basis points this year.
Meanwhile, Sun Life Asset Management Co. (SLAMC) president Valerie Pama announced that the mutual fund company’s assets under management expanded by 43 percent in 2013 to end December at P41.13 billion. Gross sales also surged by 157 percent last year to P25 billion.
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