II December 2013
GEM Equity Strategy Outlook 2014
We cannot downgrade the Philippines to underweight because of the dearth of
compelling alternatives. However, we fully share the increasing level of
reservations expressed by head of DB Philippines Research and market guru,
Rafael Garchitorena, based on the following factors:
• The Philippines is standing at a massive premium to its own history
and relative to its own history against the GEM benchmark on a P/BV
to ROE basis.
• There are indications that earnings growth may be staring to slip -
Rafa points out that third quarter earnings were extremely
disappointing at the aggregate level - the market is now paying 18
times for around 8% earnings growth.
• The supply demand balance for equities may start to deteriorate over
2014. The Philippines is along with Korea the biggest consensus
overweight in GEM and so is especially vulnerable to potential
redemption of GEM funds by retail and/or institutional investors.
Meanwhile equity raising over 2014 is likely to continue at a similarly
high level to 2013's record amount.
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