Philippine Peso at two-year high, shares soaring

The Philippine benchmark stock index surged to a record and the peso touched a two-year high after an unexpected pickup in exports, brightening the economic outlook and spurring inflows.

The Philippine Stock Exchange Index jumped 2.6 per cent to 3,902.56 at the noon close in Manila, the most since May 28. The gauge rose for the eighth day, the longest streak since March 2009. The peso gained 0.4 per cent to 44.09 per dollar, the strongest level since August 2008, according to prices from inter-dealer broker Tullett Prebon Plc.

Exports soared 35.9 per cent in July as the global recovery sustained demand for electronics goods. President Benigno Aquino aims to expand the economy by seven per cent to eight per cent annually from 2011 to cut poverty and boost incomes. The peso has climbed 5.2 per cent this quarter, leading Asian emerging-market currencies, and the stock index has surged 28 per cent this year, the most among the 15 biggest Asia Pacific markets.

Bull market

“There’s a strong belief that we are entering a significant bull market backed by fundamentals,” said Michael Garcia, who manages $499 million (Dh1,832 million) at Union Bank of the Philippines including the top-performing stocks fund. “Breaking the record barrier sets the stage for a new run.”

Foreign purchases of Philippine stocks in 2010 so far today surpassed the level for all of last year. SM Prime Holdings Inc., the nation’s biggest shopping mall operator, jumped 9.7 per cent to 12.26 pesos, the highest since October 15, 2007. Ayala Land Inc., the largest builder, gained 8 per cent to 18.7 pesos, the highest since June 20, 2007.

July exports beat the median 29.3 per cent gain forecast in a Bloomberg survey of economists. Shipments totaled $49 billion last year and are the nation’s largest source of foreign exchange.

Philippine benchmark four-year bonds fell, lifting the yield from a record-low. The yield on the 6.25 per cent note due in January 2014 jumped 9.5 basis points to 4.995 per cent, its biggest increase since July, according to ICAP Plc. The yield this week fell to the lowest level since the debt started trading in January 2009.

“Our expectation was to hit the record later in the year but liquidity is so strong,” said Paul Joseph Garcia, who manages $1.7 billion as chief investment officer at ING Investment Management Ltd. “Some funds in North Asia are shifting to the Philippines and Southeast Asia, drawn by the region’s resilient domestic markets. The Philippines is in a sweet spot.”

Overseas investors acquired a net $15.5 million of the nation’s equities today, driving the total for this year so far to $427.6 million, according to stock exchange data. They bought a net $419.57 million of the shares last year.

Rising exports helped drive Philippine economic growth of 7.9 per cent in the last quarter, the fastest pace in three years. Asia’s developing economies will expand 9.2 per cent this year, outpacing growth of one percent in the 16-nation euro region and 3.3 per cent in the US, according to International Monetary Fund estimates published on July 8.

Even after this year’s gains, “the Philippines equity market is a consensus underweight,” JPMorgan analysts led by Gilbert Lopez said in a report. “The market, especially foreign equity investors, has not appreciated the country’s reduced risk profile.”

JPMorgan set its end-2011 index target at 4,550. Second- quarter corporate earnings also suggest the brokerage’s forecast for profits to grow 18 percent on average in 2010 and 2011 may be “re-rated upwards,” according to the analysts.

Earnings growth

Economic expansion and earnings growth of 23 per cent this year will push Philippine stocks into a “massive bull market,” Alex Pomento, a strategist at Macquarie Group Ltd., said. The benchmark index will extend gains to 4,500 in 2011, he said.

“The consensus is the Philippine economy will continue to grow and corporate earnings will continue to surprise on the upside,” Union Bank’s Garcia said.

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