Gus Cosio says so

Ideas on the Philippine Stock Market

A tough call

9:41am  Friday  2 October 2009   Philippine Stock exchange Index  2775.97

When the New York and the major markets tanked the way it did overnight, there is always a compelling reason for caution.  My first instinct is to reflect whether a short term trend is developing against the prevailing trend.  Remember, Wall Street just ended their best quarter in 11 years.  there is every reason for the big funds to bank in their gains.  Looking back six months, New York is up 25%.  compared to the yield in long term U.S. bonds, 25% is a bonanza so why shouldn’t people start taking profits.

Coming to the Philippine index, our market has actually lost ground in the last 2 months.  Compared to the New York indices, we have underperformed by around 5%.  To my mind, the sideways movement with a slight downward bias in the PSEi is part of the consolidation that is going on.  Factoring the bad news of the last typhoon and the scare of a new typhoon coming gives us more reason to be cautious, but I would not say that the major trend is over.

I would recommend a hold for most stocks today.  TEL for one has had a strong run; there could be some profit taking there.  I would imagine the same for GLO, ALI and perhaps MBT.  There may be refuge to be sought in smaller stocks because some of them are still very cheap.  Any downtrun would be a good opportunity  to buy the favorites.  My near term objective is to buy AC around 295.  I haven’t had time to think about the others yet because I am again on holiday.

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October 2, 2009 - Posted by | Financial markets in Asia

7 Comments »

  1. I wished I’m still holding ALI.

    My 10 – 15% gain from my mid-May to September trading has been turned red. I will just stay on the sideline until there is a clear upward trend. I failed to properly trade the range in this sideways movement and I did not value cutting losses. Oh well, charged to experience.

    Comment by oliver mia | October 2, 2009 | Reply

    • I think one lesson that all of us can learn is that stocks with excellent fundamentals will out perform. I had AP which I bought at 3.30 and sold at 4.40. Look at it now – it’s at 7.10. I should have just kept it and gone to sleep. That’s why I’m holding on to my PNB. I bought it at an average of 22. I think I would like to wait for 35. I can afford to wait.

      Comment by Gus Cosio | October 6, 2009 | Reply

  2. I think the market is in a short term bearish trend which I take advantage to buy more. Hope, the last two months will be the a profit-taking mode. Need more cash on the holidays!

    Comment by Bullish Trader | October 4, 2009 | Reply

    • It’s a tough call. Hard to say that investors are really bearish. Look at last Friday’s action and even Monday’s; in spite of potential negatives, the market does not want to stay down. That is not a bearish sign.

      Comment by Gus Cosio | October 6, 2009 | Reply

  3. I started digging through PNB. First, let me share some price landmarks. Technically, the stock remains in a secular decade-long bear market; at least based on a ten-year monthly price chart, PNB hit a high of P152/share in November 1999. From then on, it fell sharply to its trough of P29.50/share made in January 2001. ( I just don’t know if a stock dividend or stock split happened at that time. )It has moved sideways with a downward bias since then. There was a bear market rally from February 2001 to February 2002 which pushed the price up to P79/share, after which, in a space of three months, it retraced back to 29.50. The stock price ground painfully sideways for two years until 2004. Another bear market rally catapulted the price to 65.50 in July 2007. The subprime crisis forced the stock price down to its knees when it closed at 9.70/share. ( An all-time low, I believe. )

    The fundamental event behind the bear market in PNB was the bank’s bankruptcy or near-bankruptcy in 2001/2002. The government, through PDIC, bailed out the bank. The years that followed saw the bank’s re-structuring and aggressive disposal of bad assets. ( My info here is incomplete, so please correct any errors. )

    In 2005, the government bidded out a portion of its stake in the bank. Lucio tan won the bid at P43.77/share. A secondary offering followed in 2007 priced at P59.00/share, through which the government sold out its remaining stake.

    PNB’s numbers have improved significantly. The bank has been profitable in the last three years. NPL ratio has dropped to single digits. The deficit has been wiped out. As of this year, the ROE has climbed up to 10%. Current market capitalization is around 15B, while total equity is around 30B. PER 10x based on 1H09 EPS 2.30/share.

    If PNB breaks through 26, then the next resistance could be at 40 ( based on chart, par value, 2005 bid price ~43 ). Beyond 40 there is channel resistance at 60 ( or 2PO price of 59 ). I believe, though, that only a break and close above 60 will signal a new bull trend for PNB. I also believe that staggered pyramid-down buying on dips ( supports at 21.50, 18.25 ) is reasonable because of the succesful turnaround story, improving numbers, and pending merger with Allied Bank.

    Comment by Melvin | October 4, 2009 | Reply

    • Melvin,
      I agree with you completely on PNB. I like the stock and I think it is cheap even at 26. I think there’s money to be made trading this stock. In the last two months, you could have played the range buying around 23 and selling above 25.
      In my case, I’m waiting for the break out at 26 to add to existing positions, but I would not mind buying at these levels also. To me, it’s a matter of money management now.

      Comment by Gus Cosio | October 6, 2009 | Reply

      • Sir Gus,

        It was your bullish call on PNB that prompted me to look at it closely. I was initially fixated on CHIB and RCB. Come to think of it, the Philippine banking sector is a turnaround story from the ravages of the 1997 crisis. And yes, PNB offers a wide enough range for trading. But I want to ask about some numbers. I computed PNB’s NPL ratio at around 8% based on 1st semester numbers. Is it correct? I think in the past its NPL ratio even climbed to as high as 50%.

        Comment by Melvin | October 10, 2009


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