HSBC neutral on PH equities

Fan Cheuk Wan, HSBC Private Bank head of investment strategy for Asia

British banking giant HSBC is upbeat on the Philippine economy but “neutral” on local equities, citing relatively rich valuation versus regional peers.

Fan Cheuk Wan, head of investment strategy for Asia at HSBC Private Bank, said in a press briefing on Tuesday that within the domestic stock market, HSBC favored the property, infrastructure and consumption sectors.

HSBC also expects an average growth in earnings per share of 7 percent – in line with market consensus – for companies which are part of MSCI Philippines. This forecast is slower than HSBC’s forecast of 13 percent for Asian equities outside Japan.

As such, Fan said the “neutral” recommendation was because Philippine equities have maintained a premium in valuation relative to peers and already outperformed. Once first-quarter corporate earnings come in, she said that would be the time to revisit the equities recommendation.

The “neutral” recommendation on Philippines was changed in the fourth quarter of 2016 from the “overweight” recommendation stated earlier last year. An “overweight” rating is a call to add to investors’ position relative to a benchmark index, typically the MSCI, as opposed to “underweight” which is a recommendation to pare down position.

Among Asia’s emerging markets, HSBC is “overweight” on India, Indonesia and China which are seen to be the top three outperformers in terms of earnings growth this year on the back of their domestic-driven economies.

“We believe that their resilient domestic fundamentals and structural growth drivers would contain the potential damage from growing trade protectionism under the new US administration.” she said.

Following a surprising and turbulent 2016, HSBC still expects global financial markets to be driven by political events and policy uncertainty, thereby creating an equally challenging global backdrop.

“The Philippines is another domestic driven economy that we like but because of relatively rich valuation of the Philippine stock market, currently we are neutral in allocation to equities in our Asian equity portfolio,” Fan said.

HSBC also has an “overweight” allocation on US equities.