Where’s the exit?
9:00 am Wednesday 23 September Philippine Stock Exchange Index 2784.78 ( Wednesday close)
All over the global market, everyone is talking exit strategy. The IMF, fearing that the surge in global liquidity brought about by the unprecedented stimulus packages crafted by G20 governments plus others like the Philippines, thinks that all this stimulus have to be sterilized eventually. It is the quantity theory of money which Milton Friedman and his University of Chicago explained to have been the culprit of the inflationary push in the late 1970’s. Actually, there have been more empirical evidence to the contrary since then because it is not merely the monetary authorities that create or contract money supply. In the immediate past – referring to the period from 2008 til now – the massive injection of money into the system did not at all flood the economies with useless cash. What it did was it beefed up bank balance sheets and reduced their leverage. Too much money was not chasing too few goods and services. It was that too much money was invested in abstract assets that were countless times leveraged such that all this money and wealth were squandered in a chase for illusory returns.
The question I’m asking myself is “should investors be exiting the market now that monetary authorities are mulling their own exit strategies?” Tough question answer at this point. If you recall, my view was that the Philippine stock market was fueled by a surge in liquidity among domestic investors. Might the answer be found by second guessing those who are already in the market?
From experience, I find second guessing the market to be very unprofitable. I have always found that what sustains the value of assets is the return that eventually come from investing in it. That return is derived from operating and financial performance of the asset. In short, we do not have to guess because the bottom line is whether or not the companies whose stocks I am buying will keep on churning earnings and possibly growth.
That is why I feel very comfortable with stock like TEL and even GLO. These stocks not only have proven performance records, the outlook for their revenue base looks better than ever. I think that even if they impose taxes on texting (which I hear won’t be happening), the dent in earnings will be minimal. Face it, people in this country cannot do without their phones – land line or wireless. Lately, a few millions are starting to find internet and broadband to be indispensable to their lifestyle. Look around you in homes, offices, schools and malls; there ‘s always somebody surfing and a good number (present company included) are even surfing in motor vehicles with the availability of broadband in their hand held communication devices.
In the last 10 years, what had impacted the Philippine economy significantly were OFWs and telephones. The direct impact in our economy was seen through banks, consumer and real estate companies – particularly those that offered pre-construction financing. I have no doubt that this situation will be carried out until the next five years. Judging from the surprising growth in foreign remittances this year in the midst of a global recession, I think that the growth of OFW was likely to be bigger in 2009.
So, should we be looking for an exit strategy in market as the central are considering in the real economy? My market sense is that it will be an opportunity to buy the market when it happens.
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