MANILA, Philippines—Philippine stocks made a strong comeback on Wednesday, posting the biggest single-day gain in six years, as the recent global shakeout and the dip to “bear” territory attracted some bargain-hunting.
The main Philippine Stock Exchange index (PSEi) recouped 329.88 points, or 5.7 percent, to close at 6,118.94, the stock barometer’s biggest one-day point increase since August 2007.
On Tuesday, the PSEi shed 181.99 points, or 3.05 percent, to close at 5,789.06, down 21.8 percent from the peak of around 7,400 in mid-May, placing the market in bear territory. A market is in bear territory when it pulls back by 20 percent.
Most markets in the region rebounded after China vowed to stabilize its money market as a looming credit crunch triggered fears of a liquidity squeeze similar to that caused by the Wall Street crisis in the United States in 2008.
Investors also took heart from a string of favorable US economic data, such as a sharp rise in business spending, an upswing in house prices, consumer confidence at a five-year high and an increase in single-family home sales.
The PSEi’s rise outpaced the recovery seen across Asian markets for the day and was significantly higher than Indonesia’s Jakarta Composite, which posted a 3.9-percent rise.
Year-to-date, the PSEi has returned to positive territory with a 5.3-percent gain over the end-2012 level of 5,812.73 points.
Governor Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas said on Wednesday at the 2nd Philippine Financial Market Forum that the country’s “high-growth, low-inflation” story was intact alongside a sound banking system and adequate liquidity.
Brake on exuberance
Tetangco said the market shakeout was “good” because “it puts a brake on exuberance” that could otherwise create bubbles in the asset markets.
“Against a backdrop of solid fundamentals that have not changed even amidst the volatility in the past weeks, the declines have served to put some stocks at attractive prices. I think this is what we saw today with the strong recovery of the market,” PSE chairman Jose Pardo said in a statement.
Pardo said volatility was the natural effect of uncertainties that arose from what some perceived as significant policy announcements in other parts of the world.
“When the market goes past the overreaction phase, countries with strong fundamentals and buffers against uncertainties should be able to stay the course of their growth. The causes for the Philippines’ impressive growth continue to persist and should remain strong moving forward,” Pardo added.
PSE officials also expressed confidence that Philippine companies would deliver strong earnings growth this year. Corporate earnings are widely expected to expand at a double-digit pace this year, much faster than the single-digit increase seen in most markets in the region.
“We remain confident of our market’s ability to weather the storm. For the Exchange’s part, we stand by our commitment to implement the various market reforms that we have set out to accomplish, as well as to ensure that the PSE achieves its growth targets for the year,” said PSE president Hans Sicat.
Sicat said that the PSE board recently approved new listings and additional issuances and that he expected “more to come as the second half of 2013 approaches.”
Dealers said Tuesday’s decline was as irrational as the earlier run-up that catapulted the index to 7,400 in May, during which investors paid about 22 times the amount they expected to make this year.
Given that local stock valuations, based on price to equity (P/E) ratio, have gone down to 15 to 17 times, there’s some scope to allocate more to equities, said Maria Theresa Javier, senior vice president and head of asset and trust management unit at Ayala-led Bank of the Philippine Islands.
Time to invest now
At current levels, Javier said the market was trading at the same valuations as those seen last December, before the Philippines received sovereign investment-grade ratings from Standard & Poor’s and Fitch Ratings.
Javier added that Tetangco’s speech was reassuring. “If you’re looking at a long-term horizon, the time to invest is now,” she said.
Tetangco’s key message was that underlying Philippine fundamentals were solid and that safeguards had been built to ride out the volatility, indicating that there was no need to deviate from the current policy stance.
This suggested that there won’t be a sharp rise in local interest rates even as the US Federal Reserve Bank unwinds the regime of easy money.
“When the market is up, we experience irrational (buying) exuberance and when falling, there’s also irrational fear,” said First Metro Investments Corp. president Roberto Juanchito Dispo.
“Yes, we’re experiencing net foreign selling but we’re seeing net local buying. Otherwise, the foreign investors can’t exit,” he said.
“Moving forward, the market will recover and those brave enough will benefit,” he said.
Searching for bottom
But despite Wednesday’s strong rebound, Banco de Oro Unibank chief strategist Jonathan Ravelas said the market might not have seen the worst yet.
“I don’t think this is the bottom,” he said.
Ravelas noted that across the region, P/E ratios had gone down to 13x, which meant that local equities were still trading at levels that were more expensive than those of its regional peers.
“To call the bulls back into play, the PSEi needs to climb back to 6,750,” he said, adding that for the full year, the index would have to go back to at least 6,500.
Value turnover at the stock market on Wednesday amounted to P9.63 billion. There were 146 advancers as against 34 decliners. Thirty stocks were unchanged.
The day’s biggest index gainers were AEV (+14.88 percent), MWC (+12.27 percent) and Jollibee (+9.86 percent). DMCI, MPI, EDC and URC also surged by over 8 percent. Other big index gainers were ALI (+7.41 percent), SM Prime (+6.76 percent) and AP (+6.61 percent).
PLDT remained the country’s most valuable company in terms of market capitalization at P585 billion (+3.32 percent). Runner-up SM Investments (+6.37 percent) ended with P573.76 billion.
Tetangco said the financial market knew that foreign funds would rotate back to developed markets at some point and that it was just the timing that left market players guessing.
The central bank chief said it was a good thing that the Federal Reserve had earlier given its guidance on the unwinding of its bond-buying activities.
Originally posted at 05:36 pm | Wednesday, June 26, 2013