Gus Cosio says so

Ideas on the Philippine Stock Market

A point of reason?

10:50am  Monday  9 October 2009  Philippine Stock Exchange Index  2818.17

I’m going to take a quick inventory of some indicators that markets are taking their cues from.  U.S. unemployment – 9.8% reported last Friday; 263,000 jobs were lost in September bringing the total to 7.2 million since the recession began in the 4Q07.   U.S. retail sales – As the Christmas season approaches, retailers are pinning their hopes that spending will not be as bad as last year’s when retail sales declined 2% from the year before.  Global liquidity – “There is a subtle but undeniable shift underway in the central bank community towards eyeing not only the end of easing, but the beginning of tightening.” This was written in the Global Monetary Analyst of the Morgan Stanley Global economic Forum.  Company earnings both among global corporations listed in the NYSE and PSE listed local companies – some domestic companies have already hinted on a lower top line while bottom lines may not be badly shaken.

I think, there may be a dearth of cheerful news to be expected in the days to come, at least from global developments.  The discouraging news that I am seeing is the potential shift in monetary policy by the central bank community.  Recall that I had earlier argued that it was the over-all liquidity that stimulated the demand for financial assets.  Many fund managers believed that the global market recovery was all fueled by the unprecedented injection of liquidity into the global monetary system, the Philippines included.

The question is, to what extent has central bank liquidity injection been driving our stock market.  I can only surmise that the effect on our market was not as dramatic as they have been in developed markets.  I believe that the money flows into the Philippines were wealth parked in foreign lands that have come closer to home to seek safer grounds.  If you look closely, I would surmise that a good number believe that wealth can be preserved in domestic assets particularly in stocks with sound fundamentals.

There is also a fundamental view that the PHP will strengthen as the year wears on due to unprecedented growth in OFW remittances in spite of the economic slowdown abroad.  Now that economies are no longer slowing down, remittances are expected to maintain a growth path instead of the anticipated decline.  In short, locals will have more demand for local assets.

With some of these ideas in the back of my head, I believe that the upward trend that we’ve seen in this market has not yet changed.  If you look at TEL, it has recently come back to life.  Stocks like ALI, SM and SMPH all look formidable.  MBT appears to me that it wants to break out.  AC which is in the lower region of its range saw an impressive recovery from its Friday low of 292.50.

Is the risk of entering the market at this point unreasonable?  I do not think so.  I think that the risk-reward ratio is quite acceptable for a good number of the large capitalization shares.  My fearless forecast is that most of the blue chip stocks (TEL, AC, MER, MBT, etc.) will find its way to the top of its trading range in the next few days.  I somehow perceive thought that  the small cap and second-line shares may be seeing some sluggishness this week.

Anyway, the main message is that we are not an expensive market.  The headline stocks could show good 3Q09 results.  There is enough money in the hands of investors despite the threat of a turn from the global liquidity.  Finally, there is enough enthusiasm among local investors in spite of personal disasters experienced in the last 2 weeks.

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October 5, 2009 - Posted by | Financial markets in Asia

3 Comments »

  1. Sir,

    Do you have any insight or what are you forecast for Philweb. Its stocks went up to P15.00 and then closed at P12.50.

    thanks.

    Comment by peter | October 6, 2009 | Reply

    • In my view, WEB is a stock that is being played. It is normal that stocks are played when the outlook for the market is positive. After all, WEB’s main business is internet gaming which has been growing exponentially and theoretically has no borders. This company’s earnings could really fly given the proper conditions. I think the players are taking a rest for the time being. My guess is that it won’t be surging in the next few days. If you want to follow the stock, wait for volume spikes to get into the game.

      Comment by Gus Cosio | October 6, 2009 | Reply

      • thank you for your comment and recommendation. More power.

        Comment by peter | October 7, 2009


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