Here's what to sell in May if you decide to go away
Philippines, Indonesia looking expensive even though historical data points to other markets
Every investor likes a rule to live by and typically they like them short and easy to remember.
Buy right, sit tight. The trend is your friend. Don't fight the Fed.
This month's oft-heard mantra is the exhortation to "sell in May and go away", which is fine up to the limited point of not giving the average investor any clue about what to dump.
International investors remained dedicated buyers of the Philippine equity market
If history is any guide to investors with exposure in the Asian region, they should be scaling back holdings in Australia, South Korea and China, according to analysis done by the Asia-Pacific equity strategy research team at Credit Suisse.
Their analysis of market performance between April 30 and June 30 from 2010 until last year found Australian stock values fell by an average of 13 per cent, those in Korea crumbled 8.6 per cent and Chinese equities lost 7.8 per cent.
But look at the region through the prism of current market valuations and it is the exits of the Philippines and Indonesia that investors should be heading towards, despite those markets having some of the region's lower loss correlations for the April-June period.
Philippine stocks, calculated on a price-to-book versus return-on-equity basis, are trading at a premium to the rest of Asia-Pacific of 48.1 per cent - the richest valuation of the past five years.
Indonesian equities are only fractionally behind, with their 47.3 per cent premium the second highest in the past five years.
While Asia-Pacific as a whole attracted solid inflows from mutual funds, exchange-traded funds (ETFs) and foreign investors in the last week of April - funds bought US$197 million worth of stock while foreigners snapped up US$2.3 billion - evidence emerged that they were becoming more selective in terms of geography.
Indonesia and Korea both saw net outflows for the first time in weeks, according to Chan.
Investors in Indonesia made a small move out of the market, selling US$8 million worth of stock in the week to April 30, versus buying of US$154 million over the previous four weeks.
They were more decisive about Korea, selling US$159 million worth of equities there, versus buying of US$201 million in the previous four weeks.
Intriguingly, international investors remained dedicated buyers of the Philippine equity market, notching up their 11th consecutive week of stock purchases.
That, of course, only adds to the valuation pressures that Credit Suisse says exist there.
Analysing the 25 biggest stocks in the Philippines by market capitalisation and applying its price-to-book versus return-on-equity filter, Credit Suisse reckons the companies most overvalued - and thus most prone to a sharp downward correction - are Jollibee Foods, Universal Robina, Globe Telecom, Emperador and Ayala Land.
Running the same investment screening process for Indonesia, the stocks trading on the highest premiums there are Unilever Indonesia, Surya Citra Media, Sarana Menara Nusantara, Siloam Hospitals and Kalbe Farma.
