Aquino, son of the late President Corazon Aquino and slain political leader Benigno Aquino Jr., rose to power on a platform of fighting corruption, improving educational standards and supporting projects controlled by private companies instead of the government, in a bid to create jobs and boost growth. The stability is still fragile, as seen by the Jan. 25 bomb blast that killed five passengers aboard a bus in Makati, Manila's financial district. But market reaction was muted, suggesting that people are optimistic about Aquino's plans.
In a Jan. 6 note, Brown Brothers Harriman suggested that the Philippines might get a long-overdue credit-rating upgrade from Moody's, which cited improved economic conditions. The government did receive help from the previous administration, which drove interest rates down and launched projects prior to last year's election. But JPMorgan Securities Philippines' estimate of 7% growth last year, and its forecast of 4.5% growth in 2011, can only help Aquino.
JPMorgan also sees the 30-member Philippine Stock Exchange Index rising 16%, to a record 4,550, this year. At that level, the benchmark would be trading at 15.5 times estimated 2011 earnings, a figure that is JPMorgan's five-year historical average for the measure. Based on its coverage of 20 companies, which make up about 70% of the Philippine stock market's capitalization, corporate earnings are forecast to rise about 15% this year.
"Good corporate profitability, coupled with good government execution, via fiscal performance and infrastructure spending and projects with the private sector, will be the reasons for a market rerating," said Gilbert Y. Lopez, head of Philippines research at JPMorgan. The brokerage recommends utilities, because faster economic growth would increase...