At this time, we have a strong preference for banks such as Metrobank, BDO, and Bank of the Philippine Islands (BPI). In the first half of 2022, lending growth has accelerated, and loan book quality has improved as well.
We upgraded our view on the consumer sector to neutral as mobility restrictions ease and face-to-face classes return. Companies offering staples such as Universal Robina Corporation (URC) and quick-service restaurants such as Jollibee Foods Corporation (JFC) both showed strong volume and profit margins.
Likewise, we have turned neutral on holding firms since they are back on expansion mode and subsidiary portfolios have right sized. We are relatively neutral on mining companies such as Semirara Mining (SCC) and DMCI Holdings (DMC) versus our more ESG-leaning (environmental, social, and governance) stance on the sector as elevated commodity prices bode well for free cashflow for the year.
As for the property sector, we have downgraded our views as performance is wildly mixed. However, we maintain core positions in the bigger developers such as SM Prime Holdings Inc. (SMPH) and Ayala Land (ALI).
All this reflects our reopening theme for the Philippine Stock Market and as we upgrade our stance from underweight to neutral and load up on quality, large capital firms.
As shown in the table above, corporate earnings in the first half of 2022 have validated our views, with most downtrodden sectors posting above-average growth.
Share prices were quick to reflect better optimism as revenues trek back to pre-pandemic levels and bottom line earnings ultimately grow by 27% for the first half. The Philippine Stock Exchange index (PSEi) returned 4.2% in August as earnings were coming out.
Strong global headwinds (sustained heightened inflation, hawkish global monetary policy, weakening peso) has capped any further moves higher, as the market trades 7.8% lower for the year and especially in US dollar terms.
Nonetheless, we think that the underlying fundamentals for Philippine companies have shown resilience and warrants more constructive positioning in client portfolios.
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