Gus Cosio says so

Ideas on the Philippine Stock Market

How much more can be squeezed?

9:15 am   Friday   28 August 2009   Philippine Stock Exchange Index – 2881.40 (Thursday close)

Philippine GDP rose 1.5 percent in 2Q09 from a year earlier.  A good portion of this figure was accounted for by consumer spending which many economists attribute to OFW remittances.  In our view, the economy is probably doing better than this figure; the statistics board is not able to capture the full effect of consumer spending.

The market was slipping in early trade since a lot of participants had been waiting for consolidation.  This bit of news on GDP which was announced at 10am – the time when trading trading heats up – turned investor sentiment around.  Blue chip stocks that started to slide on further profit taking all of a sudden bounced back to life.  All the banks except BPI went up in price today.  Property stocks regained strength due to expectations that OFW money will continue to pour into the mid range residential sector.  TEL and GLO, however, were down today because their prospects remain no better than it was at the beginning of this quarter.  Personally, I think the telcos will pick up again in 4Q09.  Right now, the market is going for second liners so second line telco play ISM who runs the profitable Eastern Telecom should come into play again.

With consumer spending expected to recover, mid cap counters PIP and TUNA performed extremely well. I think other consumer plays like GMAP (GMA7), URC, SPH, and maybe JFC will be good plays as well.  The consumer sector has not yet played out its theme especially because the 2010 election, which will be one of its drivers, is still 9 months away.  Compounded by potentially strong fourth quarter spending, the consumer theme should extend all the way to 1Q10.

I guess the question to ask is how much more can be squeezed out of this rally.  I can understand investors’ anxiety with China and the rest of Asia looking to be in correction mode.  Shouldn’t the Philippine market do its bit of consolidating?  My answer is a resounding yes.  Unfortunately, there are those who do not share my opinion, and that’s the beauty of the market.  In the past, it was foreign fund managers that strongly swayed our market.  In this current rally, that has not been the case.  In the last 2 weeks, our market was seeing net foreign selling; yet, our market keeps rising.  I can only attribute this to the wider participation of local investors either directly in stocks or through the various institutional funds.

Overnight, the European markets were down following the decline in Asia. ( Would you believe, it was only the Philippine market that was up in Asia yesterday.)  In New York, after a lethargic morning session, markets started to turn and U.S. stocks ended up – DJIA +0.39% and S & P + 0.28 – with the financial sector showing the largest gains.

I think that our market will follow through the positive sentiment developed yesterday.  Economic growth has returned and the prospects are that it will accelerate into next year.  My expectations is that analysts will rerate their favorite stocks into higher earnings looking forward.  In short, I like the market.

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August 27, 2009 - Posted by | Financial markets in Asia

14 Comments »

  1. Sir,

    What do you think of AP. Its currently challenging its all time high. WIll a shift to PBR in 2010 definitely help or is there a possibility that it could hurt them?

    Comment by Warren | August 27, 2009 | Reply

  2. I am very positive on AP because I think the Tiwi Makban plant will add at least Php 1B to its bottom line, PBR already in mind. It’s a matter of volume and margins.

    Comment by Gus Cosio | August 27, 2009 | Reply

  3. What do you think of BPC given its restructuring deal with Avenue Asia?

    Comment by Marie | August 27, 2009 | Reply

  4. BPC remains undervalued. Remember, this is the grand father of Meralco, EDC and FGEN. It’s the father of FPH and ABS. I think it will do better than it did in the past now that they have their debt controversy settled. However, I think that FGEN, FPH and EDC can do better that BPC. What it has done is catch up with the values of their subsidiaries. I think it will not see that phenomenal rise from its price in March this year. BPC is not really a market favorite.

    Comment by Gus Cosio | August 27, 2009 | Reply

  5. Sir:

    1. Whats your take about FGEN in light of the SEC approval increasing FGEN’s shares? FGEN seems to have been on a downward trend after news of issuing additional shares.

    2. Whats your take on MER and PX? Both appears to have been on a downward trend, MER reaching the highs of P300 and recently selling on the P200s. Do you think MER and PX are a good buy now considering the downward trend?

    Thanks a lot. Cheers.

    czar

    Comment by czar | August 28, 2009 | Reply

    • I like FGEN but I’d wait till their fund raising is complete. The scuttlebutt is that there will be a huge rights offering which will add short term supply to the market. I like MER but below 200 so I am not in a hurry to buy it. PX is really a commodity play and a special situation on their stake in an oil drilling company in vietnam. I think you can buy PX on dips. Remember, mining shares should be traded and not held permanently.

      Comment by Gus Cosio | August 31, 2009 | Reply

    • I think there is a short term play on FGEN but that is if you really like this stock. What’s going to happen is they will try to push the stock higher so as to have a higher price for the rights issue. Then the price will drop due to the dilution. That is not to say that it will not exceed previous highs. Long term, I like FGEN but I’d wait and buy the rights instead of buying it now. I think PX and MER are both OK but you have to choose at what price you want to enter. I think PX will hold around 9. MER has very small amount of shares in public hands right now. I think a trading buy now at 195 or so should yield some profit. I see MER’s range to be 190 to 210.

      Comment by Gus Cosio | September 1, 2009 | Reply

    • I think there is a short term play on FGEN but that is if you really like this stock. What’s going to happen is they will try to push the stock higher so as to have a higher price for the rights issue. Then the price will drop due to the dilution. That is not to say that it will not exceed previous highs. Long term, I like FGEN but I’d wait and buy the rights instead of buying it now. I think PX and MER are both OK but you have to choose at what price you want to enter. I think PX will hold around 9. MER has very small amount of shares in public hands right now. I think a trading buy now at 195 or so should yield some profit. I see MER’s range to be 190 to 210.

      Comment by Gus Cosio | September 2, 2009 | Reply

  6. Sir,

    What are the odds that cross-border trading through a linkage of ASEAN bourses will push through in 2010?

    Comment by Melvin | August 29, 2009 | Reply

    • with countries as indonesia, thailand and malaysia, it will probably go through. the PSE membership is resisting the move because they ear that foreing investors will no longer go through the local exchange.

      Comment by Gus Cosio | August 31, 2009 | Reply

  7. Hi Sir,

    Your blog is very helpful and found it very useful for financial markets participants.

    I would like to post several questions:
    a. What are the possible reason why the USD appears to have been losing its value over other currencies eg. Yen or Eur?

    b. Could you kindly elaborate on how repo(repurchase agreements) take place. Also if possible reverse repo please! – seller or buyer side

    c. What is the forward rate for a 5% interest rate compared to 6% with forward rate of 6%? that will make the rates equal in derivative term. How do we compute them?

    This is very useful for my studies of European financial markets.

    Kind Regards,
    Hector

    Comment by Hector | August 31, 2009 | Reply

    • Hi Hector,
      your questions on repo and particularly the forward rate would require a bit of space so i’ll just send you an answer in your email. on the reason why the USD is weak against the Yen and Euro, it is really a matter of supply of USD which have really been pumped up over the last year. Given low USD interest rates and an iffy situation in US financial and real assets, the global capital flows are moving out of the USD. Even central banks are maintaining less USD in reserves.
      Gus

      Comment by Gus Cosio | August 31, 2009 | Reply

  8. Has there been any improvement in the whole financial markets or capital markets like sign of recovery from a slump financial growth of countries esp. those who have been directly involved from last year’s Global financial crisis?

    Comment by Hector | September 22, 2009 | Reply

    • Hector,
      Last night, the Conference Board released the U.S. index of leading economic indicators which rose 0.6% in August, the fifth straight monthly increase. These numbers are consistent with the view that, after a very severe downturn, a recovery is very near. When 3Q09 figures come out, we will see confirmation that the major economies have indeed recovered. Absolutely all financial markets have recovered, some stronger than others. As a matter of fact, we are now consolidating the gains that markets have seen since March this year.

      Comment by Gus Cosio | September 22, 2009 | Reply


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