Gus Cosio says so

Ideas on the Philippine Stock Market

Investing in the Philippine Stock Exchange – The trend is your friend

End of day May 7, 2009:

Stocks took their cue from an overnight 101.6 point rise in the Dow Jones Industrial Average (DJIA) and a 2 percent surge in Tokyo stocks early in Asian morning.  Most of the headline stocks opened firmer but at half time of trading, profit taking started set in.  Ayala Corp. (AC) which has had a 14% run sofar this week hit a wall at 250 and  closed at 246. Filinvest Land (FLI) hit 0.66 before closing at 0.63 after a 15% run for the week.  BPI remained resilient  at 44 after running from 39.50 before this week opened.

The point of this story is that while the broad market remains strong, some profit taking will likely set in. That is good because people have a chance to buy cheap.  When it comes to trading markets, remember, the trend is always your friend.

Some stocks continue to be strong despite strong rises from last week.  Ayala Land (ALI) closed strong at 7.40 with very strong buying. Metrobank (MBT) had run from 30.50 on Monday to close today at 34.50. I think sustained buying will continue for these stock whose values are in their historic lows.

What is encouraging is that new money appears to be coming to the market with the PHP moving today to 47.45 from 47.75 yesterday. The USD has declined against the PHP from 48.35 at April end.

What do I think is  going on?

Well, it seems that our local investors are looking to take more risks since interest rates are looking to soften further with infllation down to 4.8% last month from the previous month’s 6.4%.  Our economist thinks inflation will drop further to close to below 2% by June.  Then, there is this hoard of cash that people have been sitting on that needs to go to work.  The savings-investment gap in this country continues to widen because people just do not know what to do with their savings.  Also, you have a lot of these wealthy Filipinos who have had such a bad experience with their foreign wealth managers in the last year or so that they’ve taken a good portion of their money home. All this money is prowling for yield.

When I go through the values that local stocks present, I just can’t see why prices in the Philippine stock market shouldn’t move higher.  Picking one at random, I see Semirara Coal (SCC).  Greenies may have a problem here, but hey, there are a lot of coal fed power plants in China, Hong Kong and Singapore, not to mention a few here in the Philippines.  These plants are not going away for some time and they need to be fueled with coal.  Oil has recently traded up to $56 a barrel and coal prices have been very steady. SCC pays at least 4 pesos yearly dividends and may even pay 6 pesos.  At a price of 34, the minimum dividend yield is 11.8% and could be as high as 18%. SCC coal mines have proven reserves of 30 years at present capacity, so why shouldn’t this stock be bought.

If buying SCC makes you feel guilty, you can have a look at PLDT which at 2170 yields 6.4% in dividends.  Not bad for a stock that makes it to the Warren Buffet stock screener ( see this link http://data.cnbc.com/quotes/phi).  This stock always does well in rallies.

I think that for the time being, we’ve developed a trend in the market which should be around for sometime since it looks early enough in the game.  The risk reward today is very much in favor of the investor because stocks are very cheap.  I can’t help but compare the market to where it was in 2005. That year, the market was strong but got battered by political disruptions which are as regular as typhoons in this country. When the storm cleared, the market went right back to its bullish path.  As it turned out, the dip in prices was just an opportunity to buy more.  That is what I think I’m seeing now.  With all the money sloshing around, a good portion of that cash will surely find its way to stocks and prices will surge.

God bless you.

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

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