Gus Cosio says so

Ideas on the Philippine Stock Market

Are concerns opportunities?

6pm  Wednesday  12 August 2009    Philippine Stock Exchange Index  2828.51 (-1.12%)

I really did not expect ISM to rally as strongly as it did today.  I had a sense that it was going to move when I noticed WEB was strongly creeping up.  I first mentioned ISM in this series on August 4 as a stock to keep an eye on.  It was trading at .027/.028 then.  I since researched the soundness of the company and became strongly convinced that it was worth buying when I learned that the company was holding on to around Php 1.5 billion of cash.  I also learned that it’s operating subsidiaries, which were essentially telco service companies, have very strong niches.  Anyway, the price move had just started so I reckon, there is more runway ahead for this stock to take-off.  With a play going on in another telco counter – LIB – which is practically an empty shell,  a strong company such as ISM which owns 77.1% of Eastern Telecoms should be a lot more valuable.

So the market is down 32 points or 1.12% lower.  Why does it not feel that people are worried?  I went to an analyst briefing for the Aboitiz Group (AEV) this afternoon and everybody seems to be happy that the market is down.  When I think about it, cash is much less attractive to hold than good assets.  Global liquidity is still high and will continue to drive buyers this direction.  In the same token, local investors remain on the prowl for trading ideas.  Furthermore, signs of recovery have become more obvious at home and overseas and enthusiasm could build up some more especially if stock plays – like LIB, PX, LC, MER and the Lopez companies – abound.  Incidentally, AEV’s 2Q09 net income is 95% higher than 2Q08 with all companies under its wing showing very good operating and financial performance.

Looking at fundamentals, the low inflation number in July registered at o.2% (from June’s 1.5%) should be helpful to consumer spending.  The Philippine economy is very much consumer driven with domestic consumption accounting for 77% of GDP.  Such improvement in inflation bodes well for banks, property companies, consumer durables, consumer discretionaries and even telcos.  In fact most 2Q09 quarterly disclosures have indicated improved performance from the 1Q09.  In short, fundamentals support a positive view of the market.

Personally, I would be happy to see the market go down some more so that I could buy some blue chips at cheaper levels.  I like AC now that it is below 300 (it closed at 295).  Another is FLI at 94 which I think is worth closer to 1.20. GLO looks like a bargain close to 1000.  I may have some misgivings about TEL because of the play on MER and its possible US$ 27.5 million loss in the bankrupt Indian satellite company, but if it goes down a bit more, say below 2400, it may be worth taking on.

Over all, today’s pull back is more of an opportunity than a concern.  I will, likewise, keep an eye on some of these second liners because sometimes one could get pretty lucky just being in the market.

God bless you all.

8:15 am Thursday   13 August 2009

The Dow and the S & P rallied strongly on further confirmation that the U.S. is out of the recession woods.  I dare say that the PSEi is going to see another strong move.  If there’s a sector that I thinks will show sustained strength, I think it will be financials.  Keep an eye on PNB, BPI, MBT, UBP, AC and PSE.

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August 12, 2009 - Posted by | Financial markets in Asia

2 Comments »

  1. “everybody seems to be happy that the market is down”

    It is quite comforting reading that. I was worried about my position in AC when it broke down below P300.00. To a certain extent I follow Livermore’s dictum on price behavior near psychological round number levels.

    Will the performance of China’s market affect global equities? Yesterday it broke down a recent short-term low and is poised to test support at a major trendline.

    Melvin

    Comment by Melvin | August 12, 2009 | Reply

    • Yes, there is a bit of concern for China in the short term, but this is due to some pulling back of pump priming by both the government and the central bank. Chinese authorities do not want domestic inflation to go out of hand which is good. I believe we are seeing a meaningful correction in China simply because they’ve gained 70% already this year. Markets are not skyrockets. They are more like stunt air crafts that fly in irregular patterns. That is also the reason why I recommend vigilance in watching your positions. Our market is up almost 1000 points YTD. There will be some meaningful correction sometime down the road.

      Comment by Gus Cosio | August 12, 2009 | Reply


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