Gus Cosio says so

Ideas on the Philippine Stock Market

Is it more valuable than we think?

12:20pm Monday  19 October 2009  Philippine Stock Exchange Index closed at 2932.20 (+0.32%)

The markets in the U.S and Europe ended the week down last Friday.  The strongest influence in market sentiment was disappointing earnings from GE and B of A which overshadowed better than expected results from the tech sector.  With the major markets trading strongly for most of last week, I suppose it is not surprising that investors would try to preserve their gains.

It is the beginning of a new week and if we’re going to trade it properly, we must have some fresh ideas.  I’ll begin with high liquidity stocks that I feel are close to oversold levels.  Among the stocks that I follow closely, these are AGI, FLI, ALI, TEL & PIP.  Among these, I’ll be comfortable buying any and all except FLI which I would sell on rallies.  FLI is in danger of being down graded because of its properties that we inundated by the typhoons.  My next group liquids due for buying is composed of AC, MBT, BPI, PNB, URC &  RLC.  These stocks are off their highs, have been subject to some selling, but remain high on my fast horse list for the week.

For the small caps, I would suggest taking profits on TUNA while looking to buy SPH or ISM.  My inclination is that small caps may be better performers in the coming week as large fund investors become more defensive on the headline stocks while the smaller punters will continue to follow trading movements in the recently battered small cap shares.

The new issue US$ 1 billion 25 year global bond had become eventually well received notably in Asia.  The scuttlebutt is that New York fund managers thought the bond to be a little rich with the spread over treasuries at 217 over the US treasury yield curve.  Consequently, the bonds traded around 38 cents lower at 99.0 from issue price of 99.382  near New York close.  Not surprisingly, these bonds rebounded when Asia opened and started to trade a shade above par (100.10).  as expected, Philippine sovereign bonds or ROPs have a very strong constituency in this part of the world.

What is significant about the successful sale of bonds by the government is that it adds more cash into the local investment market.  It frees up funds that would have been sucked into the local fixed income market.  As it stands, a lot of investors would have to contend with the relatively low yield being derived from both local and foreign currency Philippine government bonds, a catalyst for seeking returns in other asset classes.

While this market had opened weaker, the momentum being seen in MER is once again influencing the mood of the entire market.  You’re seeing renewed interest in the Lopez stocks FPH, EDC , BPC and FGEN.  It looks like another buy program has kicked in for MER distorting its value a bit.  Nevertheless, I think that the astute trader shouwl really be looking at the front liners like TEL and AC.  In my view, these 2 stocks are a buy withing this price level  I think that in spite of some weakness in the US, investors in this neck of the woods might be looking from a different perspective.  Look at the new ROP bond; it slipped in New York only to come back in a big way in Asia.

Many analysts have been saying that the next few years belong to Asia as the US and Euroland will be dragged by their high unemployment level.  Paul Krugman was even saying that the decline global trade is far worse than in the Great Depression reason being that the US cannot afford to import more from its trading partners.  All of this will trickle down to the Asian region where more interregional trade is going on.  Eventually, the regional dynamics will provide impetus to the Asian capital markets more than the usual western driven investment moves.  My bet is that money will chase more assets in this part of the world simply because it has more room for growth in value.  Philippine stocks may be more valuable than we think.

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October 19, 2009 - Posted by | Financial markets in Asia

4 Comments »

  1. Hi Sir Gus,

    MER has been bullish today. Glad I’m still holding my shares at 197. Bought this when I read about MER in your previous blog and after reading recent articles about this company. What do you think is the target price for this stock?

    Thanks in advance. – chinchin

    Comment by chinchin | October 19, 2009 | Reply

    • Chinchin,
      I do not have a target for MER. It has exceeded my expectations because of a declared buy/accumulation by Manny Pangilinan’s group. My advise is for you to put a trailing stop on your sell target because I believe in riding your winners and cutting your losses. MER closed at 211 today. If it goes down to 205, sell it but if it goes up to 215, run the position. The next day, if it falls to 207, cut the position, but if it goes up run it further. my suggestion in essence is to put a 4 fluctuation sell stop. That way you’ll be able to maximize your return.

      Comment by Gus Cosio | October 19, 2009 | Reply

      • hi sir Gus,

        i have also been following your blog almost a month now and i would like to thank you for sharing your thoughts and answering questions as much as you can! cheers to other followers too for asking questions – one of the best ways to learn indeed.

        i may not be as technical as i could be, but with regards to the fluctuation sell stop you mentioned, it’s very interesting.

        what i’m curious though is when should one apply this? and how to have an idea of what amount?

        Comment by jakeonline | October 19, 2009

      • Jake,
        The principle in trading is to ride your winners and cut your losses. This stems from the observation that trends tend to sustain themselves and that when the trend reverses, it will also sustain itself. If you are able to enter a stock early in the trend, you should be insightful enough to gauge whether it is still moving your way. Taking profits too soon is not efficient because you own the stock at a cheap price which is a very valuable level to you. However, you would not want to lose money on the stock as well. So as the stock moves up, try to ride the trend by not being to hasty in selling. Rather, protect yourself only from loss by giving yourself a selling constraint if the stock threatens to change direction. This is what a sell stop is for.

        Comment by Gus Cosio | October 20, 2009


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