AYALA Land Inc., the largest Philippine builder, and SM Prime Holdings Inc., the nation’s biggest shopping mall operator, are among Macquarie Group Ltd.’s top five stock picks in the Southeast Asian nation this year.

The stocks, along with Globe Telecom Inc., Ayala Corp. and SM Investments Corp., will lead a rebound in the local stock market later this year, Macquarie Philippine strategist Alex Pomento said. As a group these stocks may provide investors with a potential return of 28 percent in the next 12 months, he said.

Each of Pomento’s top picks, which are owned by two of the Philippines’ wealthiest families, lost more than a quarter of their value in 2008 when the main Philippine Stock Exchange Index plunged 48 percent. About US$ 28.72 trillion was erased in global stock value last year when concerns of a recession and the worst financial crisis since the Great Depression triggered a sell off in equities.

‘These are companies that will emerge stronger from this downturn and provide strong upside when market and economic conditions improve,’ Pomento said. ‘It’s hard to ignore these stocks given their strong balance sheet and resilient sales.’

Ayala Land shares may climb to P10.21 in the next 12 months while those of SM Prime may rise to P9.30, he said. Globe Telecom, the nation’s number 2 mobile phone operator, may advance to P1,310, while its parent Ayala Corp. may gain to P266. SM Investments, parent of SM Prime, may rise to P229, he said.

Ayala, which owns the nation’s oldest and biggest bank by value, is controlled by the family of Jaime Augusto Zobel, while SM Investments, whose assets include the nation’s biggest grocer and department store, is owned by Henry Sy. Zobel’s is ranked by Forbes Asia as the nation’s third-richest family, while Sy’s is ranked number 1. 

Pomento forecast the Philippine Stock Exchange Index to climb to 2,410 this year, a 29-percent gain from its end-2008level driven by a rebound in corporate earnings and prospects of an economic recovery going into 2010.

The reduction in corporate taxes from 35 percent to 30 percent will help company earnings to grow 4.7 percent this year after contracting 5.1 percent in 2008, Pomento said. Economic expansion will slow from about 4.5 percent in 2008 and is expected to hold at 2 percent this year because of domestic demand, low interest rates, government spending and easing inflation, he said.

Still, the Philippine market in the ‘near-term’ will be affected by ‘volatility’ in the US, Pomento said. The US is the largest overseas market for Philippine exports and home to the biggest community of Filipinos based abroad. Funds sent home by overseas Filipinos account for 10 percent of the Philippine economy.

‘Given the lingering uncertainty, investors should focus on quality and liquid stocks instead of holding on to mid-cap stocks that bombed out,’ Pomento said. (Bloomberg)