PH stocks seen to outperform peers

American investment bank JP Morgan sees Philippine stocks outperforming its Southeast Asian peers this year, citing upbeat corporate earnings growth trajectory notwithstanding 2016 presidential election risks and external headwinds.

“We are recommending that investors be overweight on the Philippines relative to emerging markets and Asia [excluding]-Japan,” Jakarta-based Aditya Srinath, executive director for equity research at JP Morgan, told a press briefing Friday.

“It’s a straightforward compelling reason. The Philippines offers some of the most attractive earnings growth dynamics anywhere,” he said, noting that within Southeast Asia, this was the only market that JP Morgan has an “overweight” position. “Overweight” is a recommendation to increase allocation of stocks relative to a benchmark index, suggesting a bullish view as opposed to “underweight.”

Outside of Southeast Asia, JP Morgan likewise has an “overweight” recommendation on China, India and South Korea.

In the Philippines, Srinath said corporate earnings would likely rise by 10-12 percent this year, which he said could bring the equity market higher by 10-12 percent assuming there won’t be any expansion or compression of price-to-earnings (P/E) multiple.

He noted that Philippine stocks were trading at a P/E ratio of 18 to 20 times, which means investors are paying 18 to 20 times the money they expect to make from the market.

In the first quarter, the basket of stocks monitored by JP Morgan, which includes most of the companies in the Philippine Stock Exchange index (PSEi) and around 85 percent of locally listed companies, grew earnings by an average 15 percent year-on-year. “So the idea is it could take earnings growth expectation higher rather than lower and that’s unique in the region,” Srinath said.

Jeanette Yutan, head of equity research for the Philippines at JP Morgan, noted that 85 percent of Philippine corporations monitored by JP Morgan had either met or exceeded earnings expectations in the first quarter, higher than the ratio of 60 percent in the fourth quarter. This left only 15 percent of the basket under-performing expectations.

Of the total monitored stocks, about a quarter had performed better than expected. But elsewhere in the region, Srinath noted that less than 50 percent either met or outperformed expectations. “It’s the worst [performance] you’ve seen in a long time,” he said.