(Bloomberg) -- The bull run for Philippine stocks still has legs amid tailwinds of stronger corporate earnings, cooling inflation and continued monetary stimulus.
The benchmark Philippine Stock Exchange Index entered the bull market on Monday after climbing more than 22% from a November low. The gauge is now the best performer in Southeast Asia and one of the top gainers in Asia this year. The surge was also propelled by a stronger peso, which has been among the best performing currencies in the region. The equities index was little changed as of 10:12 a.m. Tuesday.
Foreign investors have returned to the market -- which was among the worst performing last year, pouring more than $432 million into equity funds this year. That improvement was partly due to inflow of funds after investors finished adjusting allocation on the back of MSCI Inc.’s expansion of China weighting in some of its benchmarks.
“After building momentum in the last two months, the market has convincingly broken the ceiling at 8,100 and it looks like there’s still enough gas in the tank for it to move higher,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. “Some of those who were hesitating jumped in for fear of getting left behind.”
The nation’s market was roiled by the U.S.-China trade war, escalating inflation and a weakening peso last year. Foreign investors pulled over $1 billion out of the nation’s stocks in 2018 -- their biggest withdrawal in three years, according to data compiled by Bloomberg.
A double digit growth in second-quarter earnings at SM Prime Holdings Inc., the nation’s largest shopping mall operator, supports expectations that household spending has recovered and corporate results will be better than the first quarter, according to Ravelas.
Stronger corporate earnings combined with falling inflation and a less tighter monetary condition as the central bank’s pushes with its expansionary policy will help propel the index to 8,500 in the near term, he said.
All but two of the PSEi’s 30 components have gained since the low in November with JG Summit Holdings Inc. and First Gen Corp. surging more than 65%. About half of the gauge lagged the index’s 22% gain during the period including SM Investments Corp. and Jollibee Foods Corp.
Monday’s rally sent the Philippine stock index’s 14-day relative strength index into overbought territory, indicating profit taking may occur. The last time the PSEi’s technical indicator hit above 71 in December, shares fell for four straight days and lost nearly 5%.
While the bull market will be well supported with valuation still at “reasonable“ level, “investors should rotate money from the winners to the laggards as the round of portfolio adjustments that will come with changes in the MSCI in August will provide headwinds and temper gains,” said Miguel Ong, analyst at AP Securities Inc.
(Adds Philippine stock index level early Tuesday in second paragraph.)