Global bank JP Morgan Chase is upbeat on equities in the Philippines and the rest of Southeast Asia, citing the region’s emergence as a more attractive investment destination now relative to China, which usually cornered the lion’s share of investment flows.
Arian Mowat, JP Morgan emerging market and Asian equity strategist, said in a briefing Tuesday that the institution had an “overweight” recommendation on the stock market in the Philippines, Thailand and Indonesia this year while its view was “neutral” on the region’s largest economies—China and India.
In terms of specific sectors in the Philippines, JP Morgan favors banks and conglomerates that are seen to benefit from higher infrastructure spending in the country.
Among the banks, the top picks are Bank of the Philippine Islands, Metropolitan Bank and Trust Co. and Security Bank, while among conglomerates, JP Morgan favors Metro Pacific Investment Corp. and Ayala Corp., according to JP Morgan Securities Philippines Inc. executive director Gilbert Lopez.
Lopez said that corporate earnings in the Philippines could grow 10-12 percent this year, with the possibility of a further upside. JP Morgan’s implied Philippine Stock Exchange index outlook based on projected price targets for monitored companies showed that the local stock index could head toward 5,100-5,150, Lopez said.
Mowat said there was an expanding interest in Southeast Asia in general and the Philippines in particular as a “mirror image” of how the China story was unfolding. After a robust growth over the last 32 years and gobbling up most investment flows going to Asia, Mowat said China has rising labor costs, making global manufacturers rethink their investment on the mainland and expand their exposure in Southeast Asia.
On the Philippine story, Mowat said investors were interested in record-low interest rates, an economy with relative political stability, benign inflation, tested resilience of overseas Filipino remittance flows and an expanding growth driver in the business process outsourcing sector.
In the case of the Philippines, where JP Morgan itself has thousands of employees in the BPO sector, Mowat said this service sector would be much more attractive to the economy than building a factory.
“Investors are also looking at a country with more diverse range of business groups to invest in and my suspicion is GDP [gross domestic product] numbers are understated and growth here is a bit stronger,” Mowat said.
Mowat said JP Morgan has had an “overweight” recommendation on the Philippines for more than a year now. Overall, he said he was bullish on emerging markets this year, given that inflation was no longer a problem this year compared to 2011 as indicated by the increased bias of central banks toward interest rate reduction.