Gus Cosio says so

Ideas on the Philippine Stock Market

What is water to recovery?

8:30am  Monday  17 August 2009   Philippine Stock Exchange Index  2850.01  (Friday close -0.21%)

The index was up 67 points for the week ending the 14th or 2.6% but value turnover measures are starting to show weakness.  At first glance we can observe last week that the drivers of the recent rally – MER and the Lopez related companies have started to cool down.  What has started to gain the limelight are the mining firms lead by Philex (PX) and closely followed by Lepanto (LC & LCB) with GEO and NI joining the party.

It is not surprising that value turnover is declining because there is lower fund manager activity.  What is taking up the slack is the greater participation of individual investors.  They’ve been coming to the market which is why the smaller cap shares are starting to come out.  This is actually how the market gets broader and usually results in extending the trend.

So far our market has been taking most of its cues from the global sentiment.  This sentiment has been around for almost 5 months and has added a thousand points or 40% to the market.  In this last week, we are seeing signs that the major markets are consolidating.  Analysts are pointing out that while the U.S. recession may be officially over, earnings still have to recover further to justify prices of index shares in most markets.  My guess is that we may be seeing further consolidation in the U.S., European and some Asian markets.

It may be time, then, to take a breather from front line and large cap stocks. We may have our market seeing the index declining but small caps moving better.  It may be wise and profitable to look into price and volume signals for some of these stocks.  One such stock, although large cap but not a front liner, is UBP.  I like the stock although it is not very liquid.  It is a sound and profitable bank and has not moved sharply yet.  There was, nevertheless, a volume spike last week, coincidentally the day after their 2Q09 profit disclosures.  Of course, I will continue to accumulate PNB for the simple reason that it is cheap and its fundamentals have continued to grow better.

A few other second liners and small caps to follow are ISM, WEB, SINO, TUNA, COAT, and SPH.  Similarly, mining stocks should also remain in fashion for some time to come so keep an eye on LC, LCB, MA and MAB.

The long view, I believe, remains positive.  In earlier topics I said that this rally had been liquidity driven.  The same liquidity remains intact and governments will not throw water on any recovery until they are sure that growth is already robust.  That kind of growth is still to be seen down the road, so it will be a while before governments take back any excess liquidity.  We will continue to see stocks rally until short term interest rates move at least 50 points higher.  That move is nowhere in sight.

Have a good week ahead.

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August 16, 2009 - Posted by | Financial markets in Asia

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