Gold mine sums up newfound appreciation of PHL small caps

PHILIPPINE INVESTORS are shifting into small, lesser-known names in a stock market that ranked as the world’s worst performer last month.

Demand has waned for the 30 component shares of the Philippine Stock Exchange index (PSEi), which includes giants like SM Investments Corp. and Ayala Land, Inc., amid an uncertain economic recovery, the ongoing pandemic and a flight of foreign funds. The PSEi tumbled 7.4% in January, the worst performance among global equity benchmarks.

The slump in large caps pushed investors to take a chance on riskier small caps, said Fitz Aclan, who helps manage about $520 million as chief investment officer at United Coconut Planters Bank.

“The market is very liquid now, and with interest rates low some are moving out of blue chips to look for higher yields,” Mr. Aclan said. “The expectations for blue chips aren’t as bright as before because of disappointing developments like delays in further economic reopening and vaccination.”

The benchmark has accounted for only 38% of this year’s daily trades compared with an average of about 75% over the past two decades, amid the retail-driven frenzy in small caps. The weighting of PSEi stocks in the country’s total market capitalization dropped about five percentage points from last year’s high to a recent low.

While the share of large caps has dropped, the boom in trading of non-index names is making the Philippines one of Asia’s busiest markets in 2021. An average of 59.3 billion shares has traded in the country each day so far this year.

Much of the explosion in volume has been concentrated in smaller stocks such as Abra Mining & Industrial Corp., the nation’s most actively traded stock this year, accounting for 81% of the market’s daily transactions. Its shares are up 76% since the start of January, fueled by return-hungry retail traders and speculation over investor interest in its gold mines.

“There are more retail investors now, and many of them are more aggressive,” said Noel Reyes, who helps manage $1.6 billion as chief investment officer at Security Bank Corp. “There are more people who trade daily rather than buy/hold, and that is why the money isn’t going to the index names and many of the stocks that move are the second- and third liners.”

Retail investors were behind almost 27% of the total stock value traded in 2020, up from 18% in 2019, as their participation jumped amid the pandemic, Philippine Stock Exchange President Ramon S. Monzon said on Feb. 1.

Meanwhile, foreigners have withdrawn about $4.15 billion from Philippine stocks over the past three years. It is this group that could determine whether the PSEi fully bounces back from its 8.6% loss last year and dismal performance in January. The benchmark is up 5.7% so far this month.

“Once foreign funds come back these retail investors will switch and ride the ensuing rally in index names,” said Security Bank’s Reyes. But for now, “the play is in non-index stocks.” — Bloomberg