Gus Cosio says so

Ideas on the Philippine Stock Market

Is it getting deeper?

6pm  Friday  11 September 2009   Philippine Stock Exchange Index  2870.83 (+1.23%)

A trading day in the Philippine Stock exchange gets really interesting when the most actively traded stock for the day is a small cap issue.  A total of  61.8 million shares of SPH traded today with value turn over of Php 231.98 million.  That’s about 10% of its market cap that traded today.  There looks to be one big seller – a fund in Singapore is my guess.  The significance of that is that after that large chunk of supply from the institutional holder  is put away, as what I think the market is perceiving, then most of the supply will be spread out over a wide roster of small holders.  Given that the company remains profitable with a prospect of significant growth because of an acquisition planned this year, it becomes a good consumer play or whatever kind of play for punters in the market.  Personally, I think the stock will probably have dividend yield of 6%; that is a lot better than keeping money in the bank.  It is a perfect stock for the small investor – an easy to understand consumer stock which will probably become a household name in a few years, if not already.

Incidentally, there is talk of a cut in the reserve requirement by the BSP.  Government bonds which had slowly crept up over the last month broke today because of this rumor.  Yields in the 10 year had risen from around 7.7% to 8.0% over the past few weeks in anticipation of new supply of government debt, particularly a large retail issue.  The favorable August inflation number – 0.1% rise in the CPI following a 0.2% in July – had not affected bond yields  days back.  The possibility that reserve requirement of banks would be lowered was just too powerful an incentive given that there is still a lot of money in the hands of banks.

Equity strategists would also be encouraged by this news because it means that more cash will be chasing assets and yields.  We have been set up for another liquidity driven rally in equities.  We are seeing a situation where players can easily push up stocks with very good fundamentals.  It is what we are seeing in the likes of TUNA, WEB, ISM, SPH, and PIP; these companies have very good operations that generate good revenue, cash and earnings.  Usually that translates to growth in earnings per share and dividends leading to higher prices of the stock.  I would recommend that investors scour the PSE list of shares and find a few stocks that they could be very comfortable with because while there could be pull-backs, the market has nowhere to go but up.

Today, the Nikkei is down 0.66%, but Hang Seng and Kospi are up slightly (both up 0.4%) while the Shanghai Composite is up 2.22%.  I think that all other major markets will cautiously be moving up because many of the headline companies are recovering in earnings.  We see it in Bloomberg TV everyday.

If you look at today’s most active stocks list, you will notice that it is spread over blue chips and the small and medium cap – .  If you can access the longer list, you’ll notice that a number of the second liners are also seeing good value turnover.  TUNA had value turnover of Php20.5 million; ISM traded value was Php 34.6 million; PX, Php 51.6 million; GMA7/GMA7, a combined value Php 11 million; SINO, Php 13.6 million.  What I am seeing is a broader range of stocks on the move which will translate to very good opportunity for all.  All this is happening in spite of net selling by foreign funds over the last 2 weeks.  That is telling me that this market is indeed getting deeper.  That is very good news.


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


  1. Wow! All throughout this week I thought that the technicals are still pointing down or sideways. Anyway, I would just like to get your permission because I want to share some of your write ups in the future in the following forums – and My username in the said forums is sund3r. And of course, I would always quote your blogsite.

    Thanks again Sir Gus. Your words always give me comfort and confidence in my stock positions.

    Comment by oliver mia | September 12, 2009 | Reply

    • Hey Oliver,
      you are welcome to share my blog and direct readers to my site. I try to write a daily insight on market days although sometimes i may miss a day or so particularly if there’s nothing compelling to write about. I manage a portfolio, so what I share has some substance and will not be purely theoretical. I will not try to sell people my buy ideas just to prop up my positions. That would only be very illusory. My goal in this site is to help market participants framework their own personal positions and portfolios. No one has to agree with me and I won’t beat dead horses on my views. What I find important is that people get involved in the market because there is a lot in it. Good luck to you. God bless you.

      Comment by Gus Cosio | September 12, 2009 | Reply

  2. Hi, Sir Gus. I’ve been searching (in vane) for news or info on the possible cut in the reserve requirement on deposits by the BSP ever since I read your entry last Friday. I think that’s excellent news for the market if true.

    But I can’t seem to pin down why the MB would still consider further monetary easing considering we’re already seeing signs of a recovery.

    Either they (MB)think fiscal spending lacking and unsustainable in the near term, and therefore worried about a relapse in the fourth quarter, or the MB could also be concerned about deflation.

    I have not seen the latest statistic on the velocity of money nor do I get a sense that the government’s fiscal position is untenable. If anything, I think the government was finally able to resolve funding requirement issues given its access to multilateral funding.

    I would love to hear your thoughts on the matter and whether you think such “talks” have merit given the current macro backdrop.

    As always, thank you for your time, Sir Gus!

    Comment by Jet | September 13, 2009 | Reply

  3. Jet,
    There is no formal news. It is scuttlebutt going around the banks which was why a number of foreign banks bought hefty positions in government bonds. Based on the latest BSP release, M3 has been growing at the following year on year rate: July +12.9%; June+12.6%; May+15.0%; April+13.7%; March15.6%; Fed+14.6%. While that may appear like high growth, being a developing economy, we can see growth M3 growth of 20% and it will not be inflationary because these include time deposit balances. I cannot find the official BSP release of M2 growth but my contacts at the UA&P School of Economics tell me that M2 has been flat. In short, the BSP has a lot of room to cut reserve requirements without an ounce of pressure on inflation.
    As to the government’s fiscal position, my very reliable sources tell me that DoF will not allow the deficit to go beyond Php 250 billion. As to funding issues, the national government has no problem whatsoever raising debt financing. It is the sustainability of revenues that is worrisome.

    Comment by Gus Cosio | September 13, 2009 | Reply

    • Thank you for responding to my question, Sir Gus. Your reply reminded me of a BSP press release last year that said that the BSP was intent on reducing the regulatory costs imposed by reserve requirements (RR). So if they’re serious about that declaration, then I guess this is the best time to do it given the (dis)-inflationary environment.

      Back then, I thought the reductions in the reserve requirement were temporary; that they’d eventually be brought back to pre-crisis levels as the BSP implements its exit strategy.

      Does this mean that the primary policy lever will be the central bank rates? If that would be the case, I suppose the BSP would need to raise interest rates by more than the current cuts… Alas, I’m going way ahead of myself.

      Again, thank you for your reply, Sir Gus. God bless.

      Comment by Jet | September 14, 2009 | Reply

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