A South-East Asian island set in the western Pacific Ocean is breaking records.
The world's biggest equity bull market is propelling Philippine valuations to all-time highs as international investors pile into the country's stocks in an endorsement of the president Benigno Aquino's economic policies.
The Philippine Stock Exchange Index climbed 13 per cent this year through to Monday, bringing gains since October 2008 to 285 per cent, at least 124 percentage points more than every other bull market in emerging and developed nations, according to data compiled by Bloomberg. The index turned into Asia's most expensive from the second-cheapest four years ago as rallies in Ayala Land and Bank of the Philippine Islands lifted the gauge to 19 times estimated profits.
Mr Aquino's efforts to boost spending on government projects and tackle corruption are convincing foreign investors to look past the nation's speculative-grade credit rating and focus on the third-fastest growth in Asia after China and Thailand.
Samsung Asset Managementsees further gains of at least 20 per cent and an investment-grade ranking this year. "Funds will remain net buyers," said Alan Richardson at Samsung Asset.
"The focus is on opportunity and growth rather than contraction caused by deleveraging, bank recapitalisation, fiscal austerity and increased regulatory oversight in many developed economies."
The benchmark gauge for the nation's US$236 billion (Dh866.85bn) equity market rose 0.9 per cent, the biggest gain in Asia yesterday, to a record 6,620.72. The bull market, defined as an advance of at least 20 per cent from the most recent low without a drop of the same magnitude on a closing basis, is the biggest since Bloomberg began compiling Philippine index data in 1987.
Philippine shares will probably return about 38 per cent by the end of next year, according to Mr Richardson. The benchmark index may rally 20 per cent to 30 per cent this year, said John Sturmey, the head of equity capital markets at Religare Capital Markets.
"We are very bullish on the Philippines for this year and the following years," Mr Sturmey said.
Foreign investors purchased a net $819 million of shares in Asia's 12th-biggest stock market this year, 120 per cent more than during the same period a year ago, according to Philippine Stock Exchange data compiled by Bloomberg. The nation of about 100 million people recorded $2.5bn of inflows last year, the most since Bloomberg began tracking the data in 2000.
Philippine GDP increased 6.8 per cent from a year earlier in the fourth quarter, compared with 7.9 per cent in China. The euro zone contracted during the period, while the United States expanded 1.5 per cent.
Mr Aquino plans to boost spending to a record and seek more than $17bn of infrastructure investments to spur growth of at least 6 per cent this year.
Philippine stock valuations already reflect the good news, according to Paul Chan, the Hong Kong-based chief investment officer for Asia ex-Japan at Invesco.
The benchmark index's valuation of 19 times projected 12-month earnings is the highest since Bloomberg began compiling the data in January 2006 and 46 per cent more expensive than the MSCI All-Country World Index. The Philippine gauge has the world's second-highest multiple after Greece's ASE Index, which trades at 22 times estimated profits, the data show.
Ayala Land, a developer in Manila, is valued at 39 times this year's profit forecasts, more than twice the median multiple for global peers, according to Bloomberg. Bank of the Philippine Islands, the country's biggest lender, trades for 4 times net assets, versus the 1.6 industry average.
An investment-grade credit rating may open Philippine capital markets to pension funds and endowments that have avoided the country, said Mr Richardson. The rating will probably be upgraded in the first half, said Amando Tetangco, the central bank governor."
The budget deficit was probably 2.3 per cent of GDP last year, said Butch Abad, the budget secretary, down from 3.5 per cent in 2010.
"The macro environment looks very positive and the Philippines probably has the cleanest government in its history," said Alistair Thompson at First State Investments.
"Companies are very optimistic."
* with Bloomberg News
