FUNDVIEW-Top Philippine fund manager favours banks, 2-3 yr bonds

* BPI Asset sees market consolidating after gains

* Sees yields more attractive in short-term bonds

* Favour banks on prospects for strong earnings

By Raju Gopalakrishnan

MANILA, June 22 (Reuters) - Philippines' biggest fund manager, said on Monday that there is little room for stocks to rise after the recent 40 percent surge since the start of 2009, but it still sees some value in banks. Theresa Marcial-Javier, head of investment management at the Bank of the Philippine Islands' (BPI.PS) Asset Management and Trust Group, also told Reuters in an interview that she found fixed income yields to be more attractive in short-term domestic bonds.

"We will probably stay in the 2-3 years sector for now, where we see levels that are more reflective of what the market would discount in terms of the ability of the government to fund the deficit," Marcial-Javier said.

Philippine domestic bond yields on average reached a four-month high earlier this month before falling back, driven in part by worries over the government's ballooning budget deficit. The BPI asset management group manages about 390 billion pesos ($8.13 billion) worth of assets, Marcial-Javier said, about half each in institutional portfolios and in retail funds, including mutual funds and trust funds. Its investments are domestic-focused.

Marcial-Javier is also current head of the Fund Managers Association of the Philippines, which groups 43 institutions and 120 fund managers in the country.

On the domestic stock market, she said the index .PSI was likely to consolidate at current levels, but even here she estimated the price/earnings ratio at about 12 times, based on 2009 earnings, which implied room for higher prices.

"It (the P/E ratio) is still lower than average, but the run-up (in stock prices) has been quite significant so maybe in the next 2-3 months we might see some consolidation," Marcial-Javier said.

The index is currently up about 28.8 percent since the start of 2009, but was over 40 percent higher earlier this month before investors took profit.

"Earnings will have to catch up before we see some continuation of the rising index pattern," Marcial-Javier said.

The fund manager is bullish on banks because of expectations that earnings would grow at a double-digit pace.

"If you look at banks, the recovery is pretty impressive," she added. "Banks at least would show minimum 15 percent earnings growth (this year)."

One of its funds, BPI Equity Fund, holds all three major banks in the country -- BPI, Banco de Oro (BDO.PS) and Metropolitan Bank & Trust (MBT.PS).

TACTICAL

"On a tactical basis, we might be looking at adding positions closer to 2,300 points," Marcial-Javier said of the index, given that the current consolidation was in the 2,300-2,400 points region. On Monday, the index closed at 2,411.88 points.

The consolidation should last about 2-3 months, she said.

But she added: "By the second-half, we are going into an election year, so people are quite sceptical because of the political noise that is happening."

With no surprises on the political front, she expected the index to close the year at around 2,600-2,700 points -- a gain of as much as 12 percent from current levels.

The Philippines is scheduled to hold presidential elections in May 2010, and some economic analysts are worried about possible unrest if the government of President Gloria Macapagal Arroyo amends the constitution to delay the polls.

"I guess what the market wants is for the election to happen," Marcial-Javier said. (Reporting by Raju Gopalakrishnan; Editing by Saeed Azhar)