Philippine Election a Historical Win for Stock Profits, UBS Says

Philippine investors have a knack of making money whenever the nation elects a new president -- and history will repeat itself this year, UBS AG says.

Investors should buy retail and infrastructure stocks to catch a post-election rally that could propel the nation’s benchmark equities index 8.5 percent higher this year, Jody Santiago, strategist and research head at the Manila-based unit of UBS, said in an interview. The best companies to buy include supermarket chain Puregold Price Club Inc. and Metro Pacific Investments Corp., the nation’s largest toll-road operator. Filipinos go to the polls to elect a new president on May 9.

“The election is an added layer of uncertainty, but once that is over and barring any adverse developments in global emerging markets and China, we could see a relief rally,” Santiago said. “The macro of the Philippines is so strong that it will be difficult for the next president to screw it up.”

The Philippine Stock Exchange Index has rallied an average of 26 percent in the 12 months after electing a new president in each of the past four presidential polls that the nation has held since the ousting of dictator Ferdinand Marcos in 1986, according to data compiled by Bloomberg. It could climb to 7,500 after the May presidential elections, Santiago said. The gauge closed Tuesday at 6,915.51.

The measure has been volatile this year, having rallied 14 percent since sinking to a 23-month low on Jan. 21, when uncertainty over China’s economy and a slump in oil prices triggered a global sell-off in equities. Its yearly loss through Tuesday is just 0.5 percent. The index slid 3.9 percent in 2015, its first such loss in seven years, as weak corporate earnings and the outlook of higher U.S. interest rates and slowing global growth fueled a record $1.19 billion withdrawal by overseas investors.

Economic Growth

Stocks could sustain a rally after the elections and equity valuations may remain expensive relative to Asia should President Benigno Aquino’s successor continue the government’s infrastructure program aimed at boosting long-term economic growth, Santiago said.

In the 22 quarters that Aquino has helmed the $285 billion Philippine economy, growth accelerated to an average of 5.9 percent a quarter, faster than the 4.7 percent clocked by his predecessor Gloria Arroyo, who assumed the presidency from January 2001 when Joseph Estrada was kicked out of office. Arroyo subsequently won her own six-year term in May 2004.

“If capital is being laid out to sustain long-term earnings growth, it will be easier for investors to support the re-rating that followed when Aquino assumed office,” Santiago said. “To maintain the multiple at current levels, the next government must show and convince investors of its economic and fiscal policies.”

Priciest in Asia

Philippine equity valuations have averaged 16 times 12-month estimated earnings since Aquino’s election in May 2010, higher than the 12.7 multiple reached during the nine-year Arroyo presidency. While valuations have come off from a peak of 20.8 in May 2013, the current Philippine multiple of 16.8 is still the priciest in Asia, according to data compiled by Bloomberg.

Santiago also recommends investors buy SM Prime Holdings Inc. and Robinsons Land Corp., the nation’s two largest shopping mall operators. Robinsons Retail Holdings Inc., owner of supermarkets and department stores, is another favorite. Santiago also likes property developer Megaworld Corp., because of its rising rental income from offices leased to call centers and business process outsourcing companies.

“Retail has very good prospects because lower oil prices and higher income from overseas Filipinos and outsourcing companies would mean more consumer spending power,” said Santiago, who is underweight telecoms and neutral on banks, property and utilities. “Infrastructure has the highest growth potential and because of its very low penetration rate, it will always be a priority whoever becomes president.”

Philippine economic growth, which accelerated under Aquino as he raised taxes and increased infrastructure spending to a record, is forecast by the World Bank to expand more than 6 percent this year and in 2017, to be among the fastest in the world. Gross domestic product increased 5.8 percent in 2015.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, John McCluskey

By: Ian Sayson

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