Stock investing as a learned skill
Robrina Lim Go is the president and CEO of UBS Securities in the Philippines, a global company with headquarters in Switzerland.
UBS has consistently ranked high in external surveys such as Institutional Investor (ranked first in research in 2016) and Asiamoney (ranked third in research) vis-a-vis its equity products. UBS has also been consistently awarded by The Asset as The Best Brokerage House in the Philippines (awarded in 2012 to 2014 and in 2016) and Best Equity House (2012-2014).
Go herself has been named one of the top three industry “salespersons” in Asiamoney polls for eight years in a row. She shares the goings on in the turbulent market and why people should still invest in stocks.
Q: When should an investor get into stocks? When should he/she get out?
A: Before investing in equities, one should look at his objectives and other considerations such as timeline, target rate of return, need and use of funds, etc. One should not look at investing and then make a return the week after. Often, those who invest in the stock market look for quick returns without gauging the risks.
Investing in equities is not a complicated matter, but it would need some level of understanding and appreciation.
To begin investing in stocks, it would be wise to read up on macro developments, corporate events, industry issues and the like. One should also learn to understand how global markets and politics impact markets. In cases when these factors converge and affect returns of listed companies, equities then become less attractive instruments.
Depending on one’s investment objectives, one could increase exposure in equities—or “overweight” equities in their portfolio (lightening exposure to equities, on the hand, when you go “underweight” equities). And for an average investor, one cannot just learn when is the “right time” to get in or out—you just have to do the trick over time.
Q: How does one know a good stock from a bad stock?
A: For me, there is no such thing as “good stock” or “bad stock.” Companies go through cycles, which impact their operations and earnings, making them a good investment or otherwise.
Companies then are considered favored or “good” when they are in the right structural cycle—when conditions are conducive, such as low interest rates, high demand for their products, etc.
Institutional investors generally look for earnings growth and valuation metrics, or the PE (price/equity) ratio. Growth can be driven by sector trends, company strategies, regulations, and more.
Beyond the earnings trend, I particularly like companies with good and steady cash flow. Earnings are sometimes depressed by interest expenses (such as when companies have to pay off interest on debt) or by depreciation expenses. However, if the underlying cash generation from operations remains strong, I would consider these companies good investments.
On the other hand, I tend to raise concerns on companies undergoing bad cycles, or are under pressure by regulations such that returns are affected. Investors should watch for headwinds in the macro environment.
For instance, are rates set to rise such that it could impact returns on equities? Other factors that could make a company a riskier investment are sector outlook (Is the sector under some pressure such as taxation and regulatory limits?), market position of a company (Is the company losing market share or pricing power?), among others.
Amid all these, one should always consider the valuation of a company: Is the market overpaying for the company such that its PE is on the high side? Or is there value, including cheap valuation such that the market is ignoring the potential returns? Those factors are enough to consider a “good” investment.
Q: What are potential risks and concerns for equities in the near term?
A: The market has become more volatile since the May presidential elections, with the Philippine Stock Exchange index (PSEi) rallying from about 7,000 points prior to the elections to a high of 8,100 points over a span of two to three months. Another three months down the road, the PSEi dropped to 6,600. So we are talking of a range of 1,500 points.
Today, that has recovered back to 7,300, so that is another 11 percent upside from the lows.
We see the index to remain volatile, driven by some near-term concerns:
(a) Interest rate movements, inflation rates and monetary policy. If rates start moving up to reflect US Fed rate hikes, these could affect market returns and the attractiveness of equities as an asset class.
(b) Earnings outlook for the Philippines, which could be impacted by issues such as rising costs, competitive market parameters, margin pressure, etc. We believe that while corporates remain healthy in the Philippines, the environment is becoming more challenging.
(c) State of macro reforms and how fast they can be implemented. We are monitoring the new government’s tax reform and infrastructure reforms, in particular. If they get delayed, investors could become impatient.
(d) Politics, locally and globally, could provide risks as policies are altered or prioritized.
Q: How have Filipinos changed their attitude in investing in equities?
A: Filipinos have become more aware of equities as an asset class. More importantly, there are signs that the average younger Filipino is looking at investing as a learned skill.
Today, the speed of news and availability of market data requires connectivity, and as Filipinos are more connected, there are increasing ways on how to learn about an industry or a company. Web-based trading is done digitally, as well as app-based trading—so investors are getting to trade real-time more and more.
I think the stock market was more daunting to an average Filipino in the past, but with these tools becoming more accessible, they have embraced the art of investing.
That said, the penetration is still very low.
For those who invest directly in the market, the number of accounts that have online brokerage accounts would be below the 500,000-mark across the industry. Another way of being invested in equities is through the unit trust funds of various banks and insurance companies.
There has also been a major change in that Filipinos these days entrust their hard-earned money to professional fund managers who can manage their risk and return profile in a pooled manner. Either way, Filipinos are looking for higher rate of return, and they are learning to do it via the equities market.
In my job, I encounter more maturity and discipline in the Filipino investor. I attribute that to the ongoing efforts of the Philippine Stock Exchange and other industry stakeholders in educating the Filipinos across the country, thus increasing their awareness on how to become an astute investor.
Q: What are the bright spots in the Philippine economy? How does that translate to equity investing?
A: The Philippine economy is undeniably in one of the most interesting times, either compared to global peers or compared to the country’s own historical record.
I’ve been doing this job for close to three decades, and I’ve seen how the country has come from being one of the most ignored markets to becoming one of the most interesting ones. We all read about how the Philippine GDP growth is superior to other Asian peers, growing 6.8 percent in 2016, but consider also the following:
(a) The Philippines has attractive demographics, such that its young population will be able to sustain growth;
(b) Interest rates are at historical lows, thus providing impetus for credit growth and investment growth;
(c) Corporate balance sheets are strong, with companies investing in growth and new sectors;
(d) There are pillars for growth in the economy, which is a consumer-driven economy. These include the $25-billion flow of remittances, $24-billion BPO industry, and $5 billion in tourism receipts that could still grow exponentially.
To ride on these positives, listed companies have identified growth sectors. Today, we see companies investing in new areas such as infrastructure, healthcare, renewable energy, technology, financial services and the like. They are also tapping new markets, whether in the Philippines, within Asean, or globally.
Companies like Jollibee, URC, ICTSI and SM Prime Holdings all have invested overseas even if they are strong domestically and after seeing double-digit growth levels. Being ahead in the other markets will be able to boost their growth potential over the medium term.
As an average investor, investing in equities provides growth opportunities and access to these sectors. Meanwhile, the local economy still needs to see new investments in underinvested areas.
I think the current administration is on the right track. It is looking to boost infrastructure spending, shift some of the flows to the Visayas and Mindanao areas and to underinvested sectors such as education and social services.
The Philippines is also unique, such that growth is driven not just within Metro Manila. Regional centers are growing at a faster pace, and listed companies are embarking on these growth opportunities.
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