Gus Cosio says so

Ideas on the Philippine Stock Market

Investing in the Philippine Stock Exchange (continued)

Posted in Facebook on May 6, 2009 at 6:53pm

On March 11, 2009, we had an investment round table discussion at the First Metro boardroom. We had invited personalities who had both seniority and experience in the financial markets both in the Philippines and overseas. The idea was to gather the outlook of people were used to digesting market information and formulating a perspective of what was to come. Global equities had bounced overnight but a one day rally in stock prices does not a trend make. The U.S. economy was not yet showing any signs of recovery.

Essentially, our consensus was to approach the markets with caution in equities and foreign exchange because economic fundamentals warranted such. The aggressive consensus was directed toward the bond market because we believed that there was nowhere interest rates would go in a rapidly slowing economy but down.

That was two months ago. We were correct in approaching the market with caution because the peso/USD (PHP) was weak and Philippine stocks took a beating the following week as PLDT surprisingly bought a stake in Meralco. But looking back, March 17 was the low point in our market with the PSE index hitting 1745. PLDT had tanked to a day low of 1830 dragging the whole Philippine market with it.

As I look back to March, we’ve actually gone a long way since then; we’ve had a 26% rise in the index with the PSEi closing today at 2206. PLDT closed today at 2155. The question that lingers in people’s minds is – is it too late to get into this market.

Fortunately, I think that a lot of investors and players missed the market move from below 1800 to around 2000 because they were simply too skeptical. People were focusing too much on the economic woes of the U.S. and Europe failing to realize that Asia, while affected by the west on account of its exports, had a life of its own. The Philippines with most of Asean and China had been seeing quarterly growth, albeit slow, even as the west saw recession take hold.

Today, a number of investors believe that the worst in the U.S. is likely to be behind us. I would tend to agree. A lot of money has already been thrown to the global economy by governments from all fronts – the U.S., the U.K. and the rest of Europe, and of course China. History will tell us that a surge in liquidity always fuels asset prices.

My view is that in the western economies, houses and real estate is not where the money will go. Government bonds are also unlikely magnets for money simply because absolute yields are so low. What people are doing now is they’re looking for good bargains in stocks because that is where the action is going to be in the next couple of years.

Let’s talk brass tacks. Philippine blue chips continue to pay good dividend yields at today’s levels – PLDT (TEL) at 6.4%, Globe (GLO) at 7.8%, and GMA7 at 7.6%. Smaller cap issues such as Pepsi (PIP) pay 8.9% dividend. Even the “proud to be Pinoy” Splash (SPH) pays a 5.2% dividend yield. With election fever already brewing, a natural stimulus is being stirred up in this economy on top of fiscal spending.

Some of the skeptics turned into believers only when the index broke 2000 and that’s why we are now at 2200. In approaching markets, I think that it always pays to be skeptical and I’m happy that there still a lot of skeptics out there. What it tells me is that a lot of money has yet to be put to work.

So, is it a good time to get into this market? With a little homework on stock picking, my guess is that it probably is.

Happy hunting!

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May 7, 2009 - Posted by | Financial markets in Asia

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