Shop til you drop? Why Philippine shares can climb

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Philippine shares have charged higher over the past year, and some analysts expect the country's consumers can keep the good times rolling.

"The Philippines stands out in the current environment of collapsing commodity prices, a strong U.S. dollar and increasing capital outflows," Jibo Ma, an analyst at Daiwa, said in a note this week. "Unlike other developing countries, consumer spending in the Philippines accounts for a full 84 percent of GDP (gross domestic product)," he said.

"The economy's growth momentum ought to be especially enduring when one factors in remittances from overseas and considers that a third of the population is aged below 15," he added. Daiwa has increased its recommended portfolio weighting for the market.

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But the market has already run higher, rising more than 30 percent since the end of 2013. It is up around 6.4 percent so far this year.

Foreign investors have poured around $704 million into mutual funds and exchange-traded funds (ETFs) since the beginning of the year, according to data from Jefferies. But that's left the market valuations looking a bit toppish, according to some analysts. The Philippine Stock Exchange Composite Index is trading at 22 times earnings, according to Reuters data.

"The fundamentals are solid. But they aren't supporting those valuations," said Stephen Sheung, head of investment strategy at SHK Private. He's cautious on the Southeast Asian markets, noting valuations in north Asia are more reasonable.

Even though the Philippines has positive long-term trends, such as demographics, "these are valuation levels where you have to have a lot of positives to keep it going. These markets are prone to disappointment," Sheung said.

But the positives may yet win out over the potential for disappointments.

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"It is enjoying low inflation, accommodative interest rates, lower fuel prices, rising foreign reserves and healthy economic growth," Kelvin Goh, an analyst at CIMB, said in a note this week. In addition, he expects the government's infrastructure spending to pick up ahead of the election.

"The Philippine consumer sector will benefit from lower oil prices and strong remittances. Given the solid fundamentals, we see little downside risk to consensus EPS (earnings per share) numbers," he said.

Morgan Stanley is also positive on the market, citing in part expectations that foreign investors could push still more money into stocks there.

Despite headline data suggesting emerging market and Asia ex-Japan investors are overweight on the Philippines, that appears to be driven by just a few funds with large positions, Morgan Stanley said in a note this week.

"One third and one quarter of the emerging market and Asia ex-Japan funds have zero investment in the Philippines," the bank said, noting that the country has a small weighing in benchmark indexes such as the MSCI Emerging Markets index. "The Philippines has the potential to become a significant part of investors' portfolios."

Foreign investors also haven't ventured very deeply in the Philippine market, Morgan Stanley noted, with most overweight on only six stocks out of the 20 in the MSCI Philippines index.

Indeed, even SHK Private's Sheung noted that the market could continue to rise despite high valuations as liquidity remains abundant. "It's pretty common in emerging markets, especially smaller markets like the Philippines, Thailand or Indonesia. The momentum could be driving it for a little while," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1