Asia's most expensive stock market should be out of gas, but there are signs it could have more room to run.
The Philippine stock market, Asia's strongest after Thailand, climbed 33 percent this year and 74 percent since reform-minded President Benigno Aquino took office in July 2010.
It's now Asia's priciest, trading at 17 times projected earnings, nearly double the Asia-Pacific average, according to Thomson Reuters data.
Brokers doubt the torrid pace will continue but expect modest advances in line with its strong economy, the fastest-growing in Southeast Asia, and eye the 6,500 mark in the benchmark index ahead of the country's first investment grade credit rating, possibly in the next six months.
On Friday, the market nearly hit its recent peak of 5,866.83 points in the main index after a pullback of around 4.5 percent in four days to Monday.
Although Goldman Sachs rattled the market with an underweight recommendation this month, a Reuters analysis of Philippine companies valued at more than $50 million shows that most brokers remain bullish.
(Read More: The Booming Philippines' Missing Link - Foreign Investors)
Over the last 90 days, broker recommendations have not changed materially,with the average rating score improving marginally to 2.39 from 2.47, with 1 being a strong buy.
While equity mutual funds invested in Southeast Asia have begun to look elsewhere for value, with their sights set on China and India, there has been no aggressive foreign selling in the Philippines.
Net Foreign Buying
Foreigners were net buyers of Philippine stocks in the first two weeks of December and snapped up 107 billion pesos ($2.6 billion) worth in the year to Dec. 12, nearly double from a year ago.
"The Philippines will not be the top performer, but it will definitely be outperforming emerging markets," said Paul Joseph Garcia, chief investment officer at BPI Asset Management in Manila.
He said the economy, which grew in the three months through September at the fastest pace since 2010, was likely to remain strong next year, supported by spending related to congressional elections in May, infrastructure projects and sustained consumer spending despite global growth worries.
Reuben Mark Angeles, research head at First Metro Securities Brokerage Corp in Manila, expects market volumes to remain brisk ahead of an anticipated investment grade credit rating for the country. Japanese fund managers were interested buyers, Philippine Stock Exchange President Hans Sicat said.
On Thursday, Standard & Poor's became the first among the three major credit-rating agencies to switch its outlook for the Philippines to positive from stable, moving just six months after its last upgrade. It said the country could be awarded investment grade status with sustained reforms.
But doubts have surfaced on the sustainability of the rally, with foreign money likely to move to new high-growth markets as the global economy slowly recovers.
(Watch Now: Philippines & Thailand: Asia's Bright Spots)
"We do not expect new headlines in the Philippine market in the coming six months, and so little reasons for new investors to venture aggressively into the market," said Mixo Das, an analyst at Nomura International (Hong Kong), which has an underweight recommendation on the Philippines.
But even without hefty foreign fund inflows, the market may be supported by local investors who now dominate trade, buying more than 939 billion pesos ($23 billion) worth of shares up to Dec. 14, data from the stock exchange shows.
Local investors, shunning low interest rates in debt markets, now make up 55 percent of the equities market volume. Foreigners used to dominate the market with a 60 to 70 percent share before the global financial crisis, said BPI's Garcia.
"This market has legs because not everyone is in yet. It is not a crowded market story," Garcia said.