Gus Cosio says so

Ideas on the Philippine Stock Market

We may be in for some turbulence

When a market opens strong and closes weaker than the open, it tells you that there is some profit taking going on.  Profit taking occurs because those who had bought the market early start to pare down positions to protect their gains.  It’s the “bird in hand that’s better than two in the bush” common sense.  I totally agree with this kind of thinking when managing your investments.  I’ve always believed that nobody loses money by taking a profit.

The PSE index gapped up to open 23 points higher than Friday’s close.  We opened at 2265, traded up to 2281 in mid-session and eventually closed at 2266.  The market is still higher than last week’s close, but today’s price action requires some caution, specially if you are just buying the market now.

At mid-day, the peso had strengthened against the U. S. dollar to 47.02.  It would have been an eighth consecutive day rally except for profit taking that set in during afternoon trading.  The peso closed at 47.36, slightly softer than last Friday’s 47.25.  It is still the peso’s longest winning streak in 17 months.  Government bond prices are also stronger as yields gradually came lower.  What this tells me is that the money flow sentiment is still going our way, but it’s time to reassess positions.

The MSCI Asia Pacific Index of regional shares gained to the highest level since October as of the morning session.  However, in today’s afternoon, some reversal was seen in Hong Kong (-1.74%), Shanghai (-1.75%), and Indonesia (-1.08).

Is the rally over in Manila, then?  Let’s go back and see where we came from?

We started the year with the PSEi at 1926.  At today’s close of 2266, we’ve already gained 15% year to date.  If we measure from the low point in March of 1745, we have rallied 30% already.  In my view, it is a good time for a consolidation. We need a healthy correction to build the base for a stronger rally.

For those who have not yet established their portfolios, this consolidation that we are expecting should be seen as an opportunity to enter the market or average down on older positions (the remnants of previous years).

I like PLDT (TEL) and Globe (GLO) because of their historically low valuations.  TEL is trading at 9.9 times 2009 earnings and GLO is trading 8.6 times.  Broadcaster GMAP is trading 7.7 times earnings while soft drinks bottler Pepsi (PIP) is doing 6.2 times.  I’m still thninking that these counters will benefit greatly from next year’s elections.  These are also the issues that were not high fliers in the recent rally, so they’re still cheap relative to the rest of the market.

If there are major pull back in stocks like Metrobank (MBT), Filinvest Land (FLI),  Ayala Land (ALI), and Ayala Corp. (AC), I would recommended putting some trades on.  There was consolidation in energy stocks EDC, First Holdings (FPH), First Gen (FGEN) and Aboitiz Power (AP).  It wouldn’t be bad to watch these issues as volume builds upbecause they are still reasonably priced.

Any experienced market practitioner will tell you that there is no reason to think that this rally has come to an end.  The market will be giving late comers a window of opportunity in the coming days.  I would strongly suggest that people should start reading up on listed companies and start making a list.  You have the information in the newspapers and on the web (pse.com.ph).  Business cycles are a recurring phenomenon.  The opportunity that faces us today is that the next up cycle is just beginning after the global financial crisis.  I really do not want to be left behind.

Don’t forget your umbrellas.  We may be in for bad weather.

God bles you.

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May 11, 2009 - Posted by | Financial markets in Asia

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