The top-performing fund manager in the Philippines has almost doubled its cash holdings—betting that the nation’s stocks will extend their longest monthly losing streak since 2002—as China’s economic slowdown roils emerging markets, while the US is getting closer to raising borrowing costs.
The benchmark Philippine Stock Exchange index (PSEi) could retest a 14-month low, as a two-week rebound loses steam, said Smith Chua, who manages the four best-performing Philippine equity funds over the past year as chief investment officer at the Bank of the Philippine Islands (BPI).
“Markets are persistently in risk-off mode, so we will spend our bullets wisely,” said Chua, who’s “nibbling selectively” at consumer, property and energy companies while increasing cash levels since the start of the year. “It doesn’t pay to play too smart with the market, when there are external factors that are too unpredictable.”
The PSEi has declined every month since April, the longest string of losses in 13 years, as overseas investors pulled a record $1.24 billion, amid concern that China’s economy is heading for a hard landing and the US will soon raise interest rates.
The measure has climbed 3.8 percent since falling to a 14-month low of 6,791.01 on August 24. The index dropped 0.7 percent to 7,051.78 on Friday, capping a sixth straight weekly loss, the longest losing streak since November 2007. The market needs a “trickle” of foreign funds to hold above 7,000 for the rest of the year, Chua said.
Overseas funds have been net buyers for only one of the past 19 days, selling a net $5.7 million of shares on Friday to cap a ninth straight weekly outflow.
“Foreign investors have basically left the Philippines for this year,” Chua said. “For the index to really recover to a higher level, we’d need a little bit of that flow coming back again to us.”
Volatility, which rose to a two-year high this week, also needs to ease before the exodus of foreign capital from equities ends, he said.
While the nation’s economy is more sheltered from China’s slowdown than others in Asia, Philippine stocks can’t escape the regional contagion, Chua said.
The Philippine economy accelerated last quarter as government spending increased. Gross domestic product increased 5.6 percent in the three months through June from a year earlier, according to official data on Thursday, compared with 5 percent in the first quarter. The MSCI Asia Pacific Index has tumbled 20 percent from its April high, with benchmark gauges in Taiwan, Hong Kong and Indonesia entering bear markets.
“In a scenario where there is lack of growth around the world, the Philippines is more resilient than others because of a market that’s relatively more domestic,” Chua said. “This fundamental strength isn’t filtering through because the Philippines is part of a region that’s hurting from slowing exports and falling commodity prices. Once markets have settled and this selling has passed, this market will be among those that will come up first.”