Fund managers say PSE Index to extend gains

by Coco Alcuaz, ANC

Posted at Jul 06 2011 03:22 AM | Updated as of Jul 06 2011 11:22 AM

MANILA, Philippines - Two fund managers said Philippine stocks, which rose to an all time high yesterday, will extend their gains, citing the country's debt rating upgrades, a narrowing budget deficit, and rising corporate earnings.

"If there's any country in the world I’d like to be investing, it's in the Philippines right now," Phillip Hagedorn, investment committee chairman at ATR-KimEng Asset Management, said in ABS-CBN News Channel (ANC) interview.

"What other country is getting upgrades? And our companies are being moved to investment grade. We’ve got growth. I think we're going to see stronger growth in the second half of the year than we did in the first half," he said.
Fitch Ratings and Moody’s Investors Service raised the Philippines’ debt rating last month, indicating Philippine bonds are less risky. That allows the government – and companies – to borrow at cheaper rates which benefits the economy via lower borrowing rates, expansion and investment.
Hagedorn indicated recent gains are the early part of a longer term rally because the market has come from an 8-month rest. It closed on Tuesday at 4,439.61.
"The market has not peaked above the 4,400 level, since October of last year," Hagedorn said. "So it’s been about an 8-month period of consolidation, of taking a break from the last 2 years that the market has had a very strong run up.’’
Hagedorn said company earnings should grow faster in the second quarter than the 11 percent increase for Philippine Stock Exchange Index companies in the first quarter. He projected this should continue through 2012.
"There are really a lot of interesting developments on the macroeconomic front,’’ BPI Asset Management Senior Vice President Theresa Marcial-Javier said on ANC. "There are the credit ratings upgrades by Fitch and Moody's, that has contributed to the strong sentiment in the stock market.  Also there is the fiscal progress."
Marcial-Javier said while inflation rose in June, it was below expectations. She said the central bank may refrain again from raising interest rates at its July 28 monetary policy meeting, partly because of recent declines in crude oil. Inflation edged up to 4.6 percent in June, from 4.5 percent in May.
"Expectations about declining inflation over the long term is sort of already being discounted in equity prices,’’ Marcial-Javier said. "Given the recent decline in oil prices, there is a reason for the Bangko Sentral ng Pilipinas to pause come July 28. But I'm not discounting the fact that in the September meeting, there is possibly another 25 basis point increase, if not maybe another increase in the reserve requirement.’’
The central bank paused last month after 2 successive increases in its overnight borrowing rates. Instead it raised reserve requirements, or the percentage of deposits banks must park with it instead of lending out, to reduce money supply.