British banking giant HSBC is upbeat on Philippine equities for this year, citing the country’s favorable demographic base, economic growth performance, resilience to external shocks and profitable corporate sector.
While HSBC expects developed markets to outperform emerging markets this year, its investment experts see selective opportunities. The preferred strategy would be to rotate funds from North Asia to selected Southeast Asian markets.
HSBC is “overweight” on equities in the Philippines, Indonesia and Malaysia, the bank’s Hong Kong-based deputy research head for Asia-Pacific, Herald van der Linde, said in a briefing Thursday.
An “overweight” rating is a recommendation to buy in excess of the benchmark index.
This call is partly due to the sharp decline in the valuation in these markets and, in the case of the Philippines, to the strong underlying fundamentals. The preferred sectors include construction and real estate, which typically benefit from economic expansion.
Linde said it was “not unreasonable” for investors to tolerate a price to earnings (P/E) multiple of between 15x and 20x, suggesting a premium to historical price multiples of about 15x.
A P/E ratio of 20x means investors are paying 20 times the amount of money they expect to make in a given year.
“We like Philippines equities and Philippine credit. We think the Philippines’ macroeconomic position is far less vulnerable to external shocks than any market in the region,” added Benjamin Pedley, regional head of investment strategy for Asia.
In 2013, the Philippine government received a sovereign credit rating from all three major global credit rating firms Moody’s, Standard & Poor’s and Fitch Ratings.
HSBC also sees more investments flowing into equities than fixed income instruments this year. Linde said global equities were in the latter part of a bull run but this cycle was likely to last longer than the average run due to low interest rates.