August selloff deepest so far this year

Foreign funds dumping Philippine stocks 

MANILA, Philippines - Foreign selling continued to plague the local stock market, with August seeing the deepest selloff for the year.

Data from the Philippine Stock Exchange showed selling by foreign investors reached P17.65 billion last month.  Net foreign selling amounted to P12.08 billion as of Sept. 2,” according to the PSE.

PSE president Hans Sicat told The STAR increased volatility is among the factors that have influenced foreign fund managers to exit the Philippine equities market.

“Some of the factors that have influenced foreign fund managers are the increased volatility and price collapse in many asset classes, including equities, fixed income, commodities; various geographies, emerging markets including the Philippines have not been spared. The movements seem to be defensive with cash positions increasing,” Sicat said.

“Of course, valuations also played a major role,” said Justino Calaycay, investment analyst at Accord Capital.

Calaycay said the market has been trading at an average price to earnings ratio of above 20 times, which means investors are paying more than 20 times what the company earns per share.

With earnings unable to catch up with the market’s expectations, “it was inevitable that the excesses would have to be shed. It would’ve been a simple correction and not shaken confidence if not for the external factors,” he said.

These factors include China’s move to devalue the yuan, which sent jitters to investors across the globe.

Calaycay noted foreign selling actually began in April, way before the Shanghai rout and the Yuan devaluation which are mostly pointed to as the principal culprits.

“Foreign buying peaked in April 7, three days before the PSEi topped at 8,127.48 on April 10. At that time it could’ve simply been profits that drove them to begin liquidating positions,” he said.

However, as events unfolded such as talks of raising US interest rates this year, Greece’s debt problems and the perceived impact on the global economy, foreign investors became more uncomfortable.

 The slower than expected Philippine economic growth of five  percent in the first quarter, 5.6 percent in the second quarter and 5.3 percent in the first half of the year also dragged down investor sentiment.

“With weak GDP results for the first quarter (and succeeding, 2Q and 1H) and disappointing corporate earnings, the impetus to preserve gains and margins became imperative on fund managers. The final straw could’ve been the China ‘crisis.’” Calaycay said.

Credit Suisse senior advisor for investment strategy and research Robert Parker said many investors are waiting for the price-earnings ratio to fall to 15 times and below.

He said this is likely to happen in the remainder of the year when prospects are brighter on the back of expectations domestic consumption would remain strong.

 “You can achieve that drop two ways, either through a price correction or through improved corporate earnings. The one theme over the next six months for the Philippines, I think, and this is where you are going to get positive surprises, is in corporate earnings, whether it be through consumer companies, because I think domestic consumption will remain strong, or through companies that benefit from these low commodity prices,” he said in a TV interview.