Yearender: Stocks crawl at slowest pace in 10 years

MANILA, Philippines – The local stock market rose by a meager 4.07 percent last year, the slowest pace in 10 years, as natural calamities and financial turmoil took a toll on investor sentiment.

Risk aversion was the dominant theme in 2011 as investors were spooked by an earthquake and tsunami in Japan, followed by the debt crises in Europe and the United States, as well as floods in Thailand, prompting them to migrate to safer assets such as the US dollar and gold.

Markets have also been rocked by trading scandals, sharp fluctuations in commodity prices, and the up-and-down price of oil.

The Philippine Stock Exchange index (PSEi) closed at 4,371.96 on the last trading day of a roller-coaster year, characterized by sharp plunges followed by zooms to new heights, and then further drops and rises.

This year’s growth is almost three times slower than the 15 percent rise in 2005 but nevertheless is still considered a decent performance in the wake of Europe’s debt crisis and a wobbling US economy. In 2010, the PSEi grew 37.6 percent, trailing 2009’s 63 percent.

“Despite the uncertainties in the global market that hounded us throughout the year, the local stock market has closed 2011 with yet another set of milestones. The index has been a top performer throughout the year compared with its peers in the region. In fact, the PSEi soared to record highs seven times (last year) alone,” said PSE president and chief executive officer Hans Sicat.

Last year, listed companies raised a record P107.5 billion in new capital from the equities market, up 26.6 percent from the 2010 level and 19.3 percent higher than the previous record set in 2007. Bulk of the amount or P42.85 billion was generated from private placements, P40.61 billion through stock rights offerings, P15 billion from follow-on offerings and P9.04 billion through initial public offerings (IPOs).

Five companies – including fast-growing construction firm Megawide Construction Corp., Lucio Co-led grocery chain Puregold Price Club Inc., chip maker Cirtek Holdings, Calapan Ventures and Touch Solutions braved market turbulence last year with the maiden offering of their shares.

Total value turnover reached an all-time high of P1.42 trillion, 17.8 percent more than the P1.21 billion recorded a year earlier, helped by increased foreign buying activity and strong appetite for mining and oil issues, which recorded a combined 68.5 percent growth.

Net foreign buying in the PSE jumped 59 percent to P56.52 billion from P35.62 billion in 2010 as foreign funds sought higher returns out of Asia’s emerging markets.

Backdoor listings also made a major comeback in the stock market in 2011 with the acquisition by ports king Enrique Razon of Active Alliance Inc., as well as the entry of businessman Jose E.B. Antonio’s Century Property Group via the purchase of East Asia Power Corp.

Amid a bearish market, investors continued to dabble on penny stocks in anticipation of an impending acquisition deal.

Mergers and acquisitions (M&A) continued to be the name of the game for both powerhouse conglomerates San Miguel Corp. and the Pangilinan-led Metro Pacific Invesments Corp. (MPIC).

Telecommunications giant Philippine Long Distance Telephone Co. (PLDT) purchased a majority interest in Gokongwei-owned Digitel Telecommunications Phils. Inc. (Digitel) for P69 billion, making the transaction the biggest private corporate M&A in the country’s business history.

MPIC likewise pursued the acquisition of several hospitals this year including the upscale Asian Hospital. The group was reported to have revived talks to take over GMA Network Inc. The TV firm’s management, however, was quick to deny this.

Meanwhile, San Miguel continued its string of acquisitions, building up its road and energy portfolio. It acquired ExxonMobil’s 65 percent stake in Malaysian oil refiner Esso for $610 million. The deal also includes Esso’s other downstream oil subsidiaries in Malaysia – ExxonMobil Malaysia SdnBhd and Exxon Mobil Borneo SdnBhd.

Late last year, San Miguel accepted the invitation of the Citra Group of Indonesia to acquire an initial 46 percent interest in a company that controls Metro Manila Tollways Corp., the concession holder and operator of the 15-kilometer elevated Skyway tollroad from Makati to Alabang. Together with Citra, San Miguel is looking to acquire a majority stake in the 42-kilometer Southern Tagalog Arterial Road (STAR) in Batangas.

Aside from this, the diversifying conglomerate is conducting a due diligence audit of flag carrier Philippine Airlines as part of a plan to move into faster-growing industries.

San Miguel has diversified its portfolio in recent years, spinning off its traditional brewing business and moving into areas such as domestic power, telecommunications, infrastructure and energy.

Accord Capital Equities Inc.s’ analyst Jun Calaycay said the volatile swings of fortune will extend into 2012 with the continuing uncertainty over Europe’s debt problem.

While Europe is sinking in endless negotiations and heated debates, the United States is also suffering a horrible gridlock in its fiscal policy.

Industrial nations are deeply mired in a substantial slowdown and high unemployment rates while emerging markets are carefully balancing their fights on inflation and fine-tuned easing measures to spur growth amid deteriorating external conditions.

Climate change also poses a serious threat to agriculture and to the food and energy security.

Calaycay said much of the attention this year will center on Italy, the eurozone’s third-largest economy and the focal point of the eurozone’s struggle to prevent the 17-nation alliance from breaking apart.

But most analysts believe recession in some European nations seems almost inevitable.

“The upcoming 2012 is a make-or-break year for the global economy. The key is how policymakers will act in the face of current crisis, how they intend to contain the problem from spreading to other nations,” said Astro Del Castillo, managing director of First Grade Holdings Inc.

While Europe is walking on the edge of a cliff, the United States is also battling a precarious fiscal position, which poses a significant risk to its still fragile economy.

However, a recession in either Europe or the US alone may not be enough to induce a global recession, analysts said.

“Like most emerging countries, the Philippines will not be immune to the slowdown in Europe as is evident in the slowdown in exports. Investors were rattled by this report as the decline in food manufacturing, private construction, and corn/fisheries compounded to the slowdown in exports,” Calaycay said.

“We interpret this as a nascent sign of the Philippine equities market losing its swagger,” he added.

Calaycay, however, said the Philippines is still in a better position compared with other nations due to its strong fundamentals.

“Even if the global economy slows down in 2012, the Philippine government has the scope to stimulate growth (healthy fiscal balance, policy easing, and the Public-Private Partnership). Furthermore, corporate data remains healthy. Majority of third quarter earnings results of PSEi components were inline with or better-than-expected,” Calaycay said.

According to AB Capital Securities analyst Gregg Ilag, the main composite index will likely start the new year trading at a tight range pending developments from Europe. Shortterm support is pegged at 4,303 while resistance is seen at 4,372.

“We continue to be optimistic on conglomerate and energy stocks, we believe that these stocks are favorable over the next year. They have large domestic exposures and favorable business environments. We think that their earnings will be less affected by events abroad because of their domestic exposure,” Ilag said. –Zinnia B. Dela Peña (The Philippine Star)