The value of the stock market will exceed the size of the economy this year for the first time as low interest rates and faster economic growth spur a record equity rally, the second biggest Philippine fund manager predicted yesterday.
The Philippine Stock Exchange Index may gain 29 percent this year to 7,500, boosting the value of the entire market, while gross domestic product in current prices may expand 9 percent, Paul Joseph Garcia, a fund manager at Manila-based BPI Asset Management Inc., said in an interview. His prediction means the economy would reach about $280 billion.
A 33 percent surge by the benchmark index last year drove the stock market’s value to $223 billion on Dec. 31, compared with the nation’s 2012 GDP of $257 billion, data compiled by Bloomberg show. Expectations that the nation will win an investment-grade sovereign rating helped drive the value of Philippine stocks to a record $247 billion on Feb. 8.
“It’s just a matter of time for the market cap to overtake GDP given the level of interest from local and overseas investors,” said Garcia, who helps manage $19 billion at BPI Asset. “The market’s high multiple is a signal investors have high confidence that the economy will be better in the next 12 to 24 months.”
Garcia said he’s holding more consumer, infrastructure developer and bank shares than are represented on benchmark indexes. He’s underweight telecommunications, energy and utilities that are expected to give relatively lower returns in an expanding economy. “We don’t think the market is overvalued yet at these levels,” Garcia said. “Any pullback in the market we will take it as a buying window at this point. Less cyclical sectors will lag the market rally and those that will outperform are those with strong links to the economy and beneficiaries of all-time low interest rates.”
The Philippine stock index jumped 1.8 percent yesterday to a record 6,835.21 but fell 0.8 percent as of 10:20 a.m. in Manila. The gauge has climbed 294 percent since October 2008 through March 5, making it the world’s biggest equity bull market. That’s at least 134 percentage points more than every other bull market in emerging and developed nations, data compiled by Bloomberg show.
Philippine GDP is forecast to grow at as much as 7 percent in real terms this year as President Benigno Simeon Aquino III plans to boost spending to a record and seek more than $17 billion of infrastructure investments, Economic Planning Secretary Arsenio Balisacan said on Jan. 31. The economy grew 6.6 percent in 2012, after a 3.9 percent expansion in 2011.
The nation’s credit rating, at speculative grade, will probably be upgraded in the first half, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said in a Bloomberg Television interview on Jan. 25. Standard & Poor’s raised its outlook to positive from stable on Dec. 20, citing the stability of Aquino’s administration and economic growth.
Foreign investors purchased a net $812 million of shares in Asia’s 12th-biggest stock market this year, 45 percent more than in the same period a year ago, according to Philippine Stock Exchange data compiled by Bloomberg. The nation of about 100 million people recorded $2.5 billion of inflows last year, the most since Bloomberg began tracking the data in 2000..