Gus Cosio says so

Ideas on the Philippine Stock Market

Silver platters and silver linings

8:30am   Monday  24 August 2009   Philippine Stock Exchange Index  2720.18 (Thursday close)

Positive growth in Japan, Germany and France. Existing home sales in the U.S. up 7.2% in July – its fourth consecutive months.  Central bankers from around the world gathered in Jackson Hole, Wyoming expressing confidence that the worst of the financial crisis was over and that a global economic recovery was beginning to take shape.

It looks like the world’s major economies are over the hump and Wall streets cheered with major indices pushing to their highest close in 2009.  There is no more doubt that we are in the middle of a bull market as far as the major markets are concerned.

But wait a minute, we’ve been riding the bull for almost five months now, even before signs of recovery even showed up.   The bull is no longer a stranger.  As a matter of fact, the Shanghai market which had gone up over 70% at its peak is now almost 20% below that peak.  As a matter of fact, China’s central bank is now looking to tighten the credit situation because they think that too much money had gone into stock trading.  They are in fact saying that everything to this point had been a liquidity driven move in the market.  It is a situation where the market predicted the recovery which is what usually happens after a recession.

Let’s look at the Philippine scenario.  This market bottomed out in March when the index hit a low of 1745 on 17 March 2009.  Ever since then, we’ve seen a high at 2887 on 4 August 2009.  That was more than a 60% recovery.  In fact, it is safe to say that we’ve erased all the anxiety that was poured upon this market by the financial crisis of 2008.  In fact, we had breached the levels seen in August 2008 when the final signs of the crisis were finally unfolding.

What am I trying to say?

Thee move from March to early August should be viewed as almost a complete recovery of the Philippine market.  We had come from very cheap levels and, naturally, we could not stay there.  The theme that the market has been playing on these past months was the extreme value for money that a lot of the familiar stocks had to offer.  We were seeing close to double digit dividend yields on some of these blue chips early in the rally and it was no surprise that investors piled them all in.  The question now is whether people still have room for these stocks at these prices, hence the need to be more discriminating in selecting assets.

The funny thing is that the local central bank did not really pump money into the system.  Any excess liquidity created was on account of inward flows coming from foreign remittances from both OFW and private wealth of resident Filipinos.  As a matter of fact, some independent statistical measures might even show that the central bank tightened during the past few months.

As investors in the local market, we should try to digest these developments so that price movements of financial assets can make sense to us.  My fearless forecast is that interest rates will remain stable at these current historically low levels because money is available without much help from the BSP.  Economic activity will likely move better because the major economies are feeling more upbeat and domestic exports and tourism can start to pick up.  Finally, government would be quicker to spend in the final months of the year because the fiscal deficit will not appear to difficult to manage now that the world is out of recession.  In a sense, asset prices do not look to be expensive yet especially in relation to interest rates.

Can we still ride the bull market?  I think we should, but with the thought that it won’t be a ride in the park.  The market will not hand us profits on a silver platter.  It is time to do more homework, and I hope I’ve put things in perspective for this week that lies ahead.

For particular ideas, I’d recommend looking at mining stocks because commodity prices should be on the rise again as the world economy enters into new growth.  MA, LC, AT and PX are the ones that have bankable reserves and exisitng operations.  Banking issues PNB and UBP are very safe bets because of low Price/Earning and Price/Book ratios.  EEI and DMC are likely beneficiaries of further infrastructure spending prior to elections.  EEI also has very profitable on-going contracts in the Middle East.  Consumer stocks GMA7 or GMAP, SPH, PIP, URC and TUNA are not bad buys either.  I would also recommend some profit taking on some of the recent M & A plays.

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August 23, 2009 - Posted by | Financial markets in Asia

6 Comments »

  1. Hello,

    i enjoy reading your blog and am an avid follower of your suggestions. I just started investing last december 2008 and so far I have lost but gain more. I am slowly learning how to trade the stock market. I just read this recent blog and I just have one question what is an M & A play.

    thanks

    pierre

    Comment by Pierre | August 23, 2009 | Reply

    • M & A plays are when one party is trying to acquire another company’s share.

      Comment by Gus Cosio | August 23, 2009 | Reply

  2. oh ok thanks 🙂

    Comment by pierre | August 24, 2009 | Reply

  3. Slim pickings in the local mining sector. My only gold-related play is Nova Gold ( AMEX : NG ).

    One sector in our market that has not attracted interest is oil exploration. I believe companies like OPM and OV have valuable prospects. Trans-Asia ( TA ) is still trading below book value and is part-owner of a huge oil prospect. PX thru Philex Petroleum is also an indirect play on oil exploration.

    Comment by Melvin | August 24, 2009 | Reply

    • I own some OV and I’m just holding on to it to see if it makes money. I sorry I have no views about TA. I think Philex (PX) should be a good play on both commodities and energy, so I agree with you completely. I like SCC also but I toke some profits lately because of the possible drag by DMCI’s acquisition of Calaca which I hear would be injected into SCC. I’ll probably go back to SCC when the situation on the company gets clearer. I still think that it will be a good energy play. As to mining, I like LC which I recently bought. According to my research, next to PX, it has the best mining resources in the industry.

      Comment by Gus Cosio | August 25, 2009 | Reply

  4. Re : LC

    MVP agrees with you! I am biased against the company because the owner allegedly carries an unsavory reputation as a market player. Some opine Philex will ultimately benefit if MVP acquires LC/MA because the latter’s assets could then be merged with Philex’s.

    I’ve been eyeing DMCI since last year and I even did a personal study that values it at 6/share. But I don’t know what bug bit me and I didn’t buy lots of it at ~3/share. DMC is an all-around infrastructure play : water, nickel/coal mining, construction, housing.

    Comment by Melvin | August 25, 2009 | Reply


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