Gus Cosio says so

Ideas on the Philippine Stock Market

You were on my mind

9:40am  Wednesday  21 October 2009   Philippine Stock Exchange Index   2,943.63 ( a few minutes of opening)

When I woke up this morning, first thing I did after saying my morning prayers was to turn to the overnight market reports.  I had taken a look at the Dow before I went to bed and it was down 102 points to below 10,000.  Apparently, U.S. housing starts which the market anticipated to be 610,000 turned out at 590,000 only reflecting the sluggishness of consumer spending.   New building permits, which give a sense of future home construction, unexpectedly fell 1.2 percent to an annual pace of 573,000 units in September.  I was pleasantly surprised that the Dow was down only 50 points at the close.  Investors had given weight to a U.S. Labor Department report that producer prices dropped an unexpected 0.6 percent in September.  Analysts had anticipated prices would remain unchanged after rising 1.7 percent in August.  To the market, weak producer prices signals that deflation and not inflation is what the FED will be addressing.  Interest rates are not likely to move up anytime soon.

Locally, the situation remains similar.  In spite of rising government deficits exacerbated further by the recent calamities, bond yields do not look like they are going out of control.  In yesterday’s 10 year bond auction, the Treasury rejected all bids as dealers backed up their yields to 8.375 for the new paper.  With enough money from its recent domestic and international fund raising, the BTr has enough room to dictate for lower cost of borrowing.    All told, interest rates will likely remain at these levels and perhaps even ease further due to the strong trending peso.

In the equity market, it looks to me that the institutions are increasing their exposure to the equity markets.  Most of the large cap shares traded with very good volume.  One of our readers pointed out that the top 12 most active each had value turnover of above Php 100 million which signifies more cash being put to work in stocks.  Earnings season is here and initial guidance for the largest cap stocks is that most will come within expectations.

As my morning went on, I started to ask myself that if I just came to the market today, would I be buying up for my portfolio or would I wait.  My answer was YES, I would do selective buying.  For one, I think ALI is a very good trade today.  With a lot of developers in trouble because their properties had been damaged by the recent floods, premium is being put on ALI developments which are all in higher ground and likely to be in conformity with all environmental standards and regulations.  I think the same can be said of RLC and MEG whose developments are mostly high rises close to commercial areas.  RLC even has their malls which unlike SMPH had not been affected by floods.  BPI while expensive has broken out of its rainged and has likely been rerated upwards by fund managers.  TEL while closing a little easier in New York is looking very much poised to move back to its year 2007 level of around 2800.

I can go down the line with some of the banks – SECB, MBT and PNB – because judging from the amount of corporate fund raising that has happened this year, high quality earnings had been injected into these banks revenue producing portfolios.  Consumer stocks URC, GMAP, SPH, PIP and even AGI are not at all expensive in my estimation.

A foreign house had mentioned in their latest ASEAN equity market strategy that “…the Philippines and Malaysia are now not just defensive but also sorely under-owned.”  My impression of this statement is that our market can hold its current levels because it is not overbought and institutional investors have a lot of room in their portfolios for stocks.  So while the six month gain has been superlative, it is still possible to do better.

So, do I think it is a good time to buy?  You tell me.

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October 21, 2009 - Posted by | Financial markets in Asia

9 Comments »

  1. Hi Tito Gus,

    I was just reading a news article about the Lopez’s planning to sell their stake at MWC. Will this significantly decrease the stock value given that they own 13.4% of MWC?

    Comment by Nicole | October 21, 2009 | Reply

  2. There is a slight mistake here. The Lopezes do not have a stake in MWC. I think this article was referring to their stake in Meralco which I hear they are willing to sell to the highest bidder.

    Comment by Gus Cosio | October 21, 2009 | Reply

    • Alright, thanks for that clarification

      Comment by Nicole | October 22, 2009 | Reply

  3. I was just looking over at the trend of PSEi and it has been playing with the 16- and 32- day moving averages. Good thing it was given a boost by the recent movements in the US. So saying 16- and 32- as short and midterm, I’d be wary but will play along with it. Long term is sure shot since it seems we’re out of the hole.

    I just don’t want to put “everything” (what I allotted for stocks) in now – maybe I’m just cautious of any major correction in the US that I’m anticipating will have an effect on PSE.

    I guess that’s a valid concern?

    But if that happens and after that, any long term would have a slightly better edge – but surely I’ll put “everything” in.

    Comment by jakeonline | October 21, 2009 | Reply

  4. Jake,
    You are absolutely correct when you say that you do not want to put “everything” in your stock allocation. The best time to do that is when things look really bad. Right now, we’re at a crossroad because of the outlook on the U.S. Fortunately, local fundamentals are not bad and stocks may still be behind the curve. I for one have been taking some profits and shifting to good stocks that have gone lower. I am buying ALI & AC because they’ve come down to their support levels. I’m betting that they’ll keep their range. I’ve also put a buy order on an illiquid stock – PSB – because of its strong fundamentals. Anyway, my amount is within what amounts buyers nrmally post for the stock.

    Comment by Gus Cosio | October 22, 2009 | Reply

  5. Hi Sir Gus..

    Is the PSEi limited to 30 issues only? I heard change is coming – RCBC, VLL and ABS out; SECB, DMCI and PSE in. Why not just add without removing some?

    Thanks!

    Comment by Oliver Mia | October 22, 2009 | Reply

    • The index rules were made well in advance based on on a formula taking into account daily turnover over the past 6 months, market Capitalization and the amount of float of the issue. The number of constituents remain fixed to 30 because the idea is to have consistency of trading in the stock. Other exchanges do the same because they want their index to be composed of the most actively traded stocks on a consistent basis in order to weed out those temporarily popular stocks. Notice that TEL, AC, ALI, MBT, GLO, MER, FPH, BPI etc. are always there because they are consistently followed.

      Comment by Gus Cosio | October 22, 2009 | Reply

  6. Hello Sir Gus,

    What does Oliver mean 30 issues only? The PSE is limited only to 30 companies that can issue new shares? I’m sorry I’m new and confused :s

    Comment by wren | October 22, 2009 | Reply

    • warren, he was asking about the PSEi or what was formerly known as the Phisix – the index of shares which fund managers use as a representative of the Philippine market. another acronym for the index is the Philippine Composite Index or PCOMP for short.
      It has nothing to do with who can issue new shares.

      Comment by Gus Cosio | October 22, 2009 | Reply


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