Foreign funds see bright prospects in PH equities

Foreign institutional investors may boost allocation for Philippine stocks in the coming months as receding concerns on the Chinese economy and expectations of benign global interest rates could brighten overall prospects for emerging markets, stock experts from HSBC said.

In a research note dated Aug. 26, HSBC equities strategists Herald van der Linde, Devendra Joshi and Anurag Dayal monitored global funds have been eagerly trying to get into Asian equity markets.

Citing latest holdings of major global mutual funds for July, the strategists noted both yield and growth remained the preferred themes among global mutual funds. Taiwan was seen as the most preferred market and China, the least preferred.

“Our proprietary data on mutual funds’ positioning shows that in an uncertain global growth environment, funds continued to prefer EM (emerging market) Asia markets with high yield (Taiwan) and a strong domestic growth story (Indonesia and India). In addition, funds added to their holdings in Korea, Malaysia and Thailand,” the HSBC research note said.

China remained at the bottom of the pack, with funds remaining deeply underweight on the market, the research said.  “Underweight” refers to an investment position whereby allocation is reduced relative to a benchmark index, typically the MSCI index.  This is the opposite of “overweight” whereby the allocation is made in excess of what is prescribed by the benchmark.

Mutual funds remained underweight on developed Asia markets like Singapore and Hong Kong in July, the research said.

“Looking at the current fund positions, we see a possibility of higher fund inflows into the Philippines, while Taiwan might see some outflows in the coming months,” the research also noted.

For its part, HSBC is overweight when it comes to Indonesia, the Philippines and India.  It is underweight on Hong Kong, Taiwan and Thailand.

HSBC sees the Philippines attracting more inflows in the future given its current modest position. Add to this the country’s strong macroeconomic backdrop, it said.

At the sector level, HSBC prefers utilities, energy, telecom and consumer staples.

At the end of Aug. 24, HSBC estimated Asian emerging markets had received $33.76 billion in net foreign institutional investor inflows, of which Taiwan got a share of $12.52 billion; Korea, $8.11 billion; and India, $5.84 billion.

In Southeast Asia, Thailand and Indonesia got a little over $3 billion each while the Philippines received only $1.16 billion.