More bloodletting expected at mart

Philippine stocks may appear like a screaming buy after the main index fell to its lowest in a decade yesterday but fund managers and analysts said more bloodletting was likely before any significant recovery.

They blamed the fall, which is far worse than during the Asian financial crisis of 1997, on the weak earnings outlook for most Philippine companies amid a business environment clouded by the slow US economy and US-led attacks on Afghanistan.

A further dampener was the general aversion of foreign investors to emerging markets, especially in light of Argentina‘s debt problems, resulting in almost paper-thin daily trades.

"We need to see more visibility in the profit outlook and you won‘t get that until a lot of this uncertainty is lifted," said Jojo Gonzales, research head of Philippine Equity Partners.

"It‘s hard to say at what floor price stocks might look cheap because it’s unclear what sort of returns you can get from these assets," he added.

Manila’s stock index fell below 1,000 points yesterday for the first time since 1991, and dipped 4.05 percent on the day for a plunge of 33.67 percent so far this year.

The index is the region’s second-worst performing this year, after Hong Kong, and has dropped 23.4 percent or 302.74 points since the Sept. 11 suicide attacks on the United States.

But the unkindest cut is that investors do not plan an imminent return to the local market, especially with prospects of further earnings downgrades in local corporates.

"The concern is in relative terms… considering that there might still be further downgrades in earnings, valuations might still appear steep. The drop in the composite has been huge but prices have not really become cheap," said Beds Solomon, research head at Abacus Securities Inc.

Traders said the index could sink deeper to hit new record lows around the 800 to 900 mark, and may then start to rebound.

At that level, the Philippine market’s price-earnings ratio will be hovering at around 15.8, the same level from which it started to recover in 1998 at the height of the financial crisis, said Edison Yap, fund manager of Equitable-PCI Bank Trust.

The market’s confidence is also at an all-time slow is also at an all-time low, as shown by the turnover, which usually ranges between P300 million and P500 million daily.

Regional fund managers continue to avoid smaller emerging markets like the Philippines and equity-dedicated portfolio funds are not getting fresh money for sock purchases even at current dirt-cheap levels, an overseas fund manager handling a Philippine portfolio said.

An analyst with a foreign brokerage house said most state pension funds, which in the past would jump into themarket at bargain levels, are currently counting huge paper losses.

Despite the gloomy picture, analysts and fund managers said consumer stocks and companies with a predictable earnings stream offer defensive positions and could be investors’ targets.

Consumer stocks like beer and food conglomerate San Miguel Corp. and fast-food chain Jollibee Foods Corp. lead the defensives since domestic consumption is unlikely to be severely hit by external shocks, fund managers said.

Mall developer SM Prime Holdings with its steady earnings base from operations nationwide, is another likely winner. Analysts attribute this to the Filipino penchant for continued spending and food and entertainment despite crisis.

Top Philippine media firm ABS-CBN Broadcasting Corp. will benefit from an expected flight to quality as advertisers stick to the market leader amid shrinking advertising budgets.

Philippine Long Distance Telephone Co. despite its debt problems, offers value in the long run because of its solid telecommunications franchise.