Gus Cosio says so

Ideas on the Philippine Stock Market

These are a few of my favorite things

9:15am  Tuesday 20 October 2009  Philippine Stock exchange Index (closed yesterday at  2932.20)

It was very predictable that the local stock market would open weak on Monday with New York taking back some of its gains for the week.  It is not that this market is trying to follow the sentiment in Wall Street; it is just looking for direction and found it.  Ironically, MER provided the change in sentiment, and the index seems to have mirrored MER’s movement.  The PSEi was gradually declining early on Monday’s trading session until around one hour and a half into trading when traders noticed that MER was not moving down with the rest. Instead, there was a spike in MER’s volume which is an indication of large interest in a stock.  In time, there was disclosure that First Pacific was interested in acquiring more of MER pushing  the stock to 217 eventually closing at 211.

A market needs a catalyst to spark sentiment particularly when traders are still waiting for more concrete developments such as 3Q09 earnings reports which are due anytime now.  In the region, equity markets were not as pessimistic as the western exchanges.  Except for Sydney and Tokyo, practically the entire region is up.  Investors are trying to perceive the difference in the underlying economic trends in both hemispheres.  While the US is growing, the sword of unemployment is hanging precariously over its head leading economists to think that the present recovery may not be sustainable.

Worries and more worries.  To most people, this would provide depressing sentiment.  But wait a minute, even if the economy remains suspect,  the risk expectation among  US investors is declining as represented by VIX futures contract prices which are really where people are betting real money on the future volatility of the S&P 500.  That number has been trending lower is now trading at one year lows and is moving towards it historical norms.  What this means is the risk appetite of large investors have come back to normal levels from extreme positions over the past 52 weeks.

Overnight in New York, we see a very strong rebound of the Dow rising up to  around 115 points at mid session and finally closing up 96 points, well above the 10,000 psychological level.  Earnings again surprised favorably in the backdrop of a fundamentally weak economy.  The press reports that many investors are still wary of how the economy will eventually take its toll on the equity markets.  The risk appetite measure as seen in the VIX continued to move easier reflecting a follow through from Friday.  Investors do not appear to be complacent in their stock positions yet a large number seem to be betting that markets will be stable 30 days ahead.

Coming back to Manila, regional analysts appear to think that the Philippine market is not as good a value as perhaps Indonesia and Thailand.  The problem with this kind of thinking is that it continues to assume that it will be the foreigners that will sustain our market’s strength.  I happen to think otherwise simply because local institutional buyers managed to accumulate core stock positions at very low levels.  These fund managers will tend to keep those positions in very firm portfolios for some time to come because they may not see those low price levels again.  This implies that a lot of these blue chip stocks will not see chunky sellers for sometime to come.

My observation is that the PSEi is pretty well supported; and dividend yields and reasonable growth in earnings per share will sustain this fundamental thinking.  With the global markets going well, I reckon that at this point, it is more dangerous for a fund manager or a trader to be short or without a position than to be holding your favorite stocks.

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October 20, 2009 - Posted by | Financial markets in Asia

2 Comments »

  1. Wow! The top 12 most active stocks today breach the 100,000,000 trade value mark and most (or maybe all) are big caps. Does that mean something important?

    By the way, what is your take on AGI? I’m planning to cut loss on this one. And get EDC, SECB (for the play)or ALI (looks solid at 11.00)?

    Thanks Sir Gus!

    Comment by Oliver Mia | October 20, 2009 | Reply

  2. That is indeed impressive for the top 12. This signals that a lot of cash is coming into the market from institutional investors. I like ALI and SECB at these levels. I am long ALI at 11.25 and SECB at 54. I still like AGI though. It’s oversold at the moment. I bought it for the growth prospect due to the partnership with the Malaysians. EDC, I figure, is a bit overbought. I’d buy it around 4.60 to 4.70 on a pull back.

    Comment by Gus Cosio | October 20, 2009 | Reply


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