Gus Cosio says so

Ideas on the Philippine Stock Market

Can I hold my breath for a few days?

6:45pm  Thursday  22 October 2009   Philippine Stock Exchange Index  2888.72 (-1.07%)

A 25 point drop yesterday followed by another 31 odd points today.  Everybody in the neighborhood is down.  It looks to me like further profit taking/selling  on MER, TEL and  FPH while we see follow through buying in EDC, BPI and ALI.  The stories may be different for every stock but I have some theories that I’d like to put forward.  AC for example has been pretty weak the past few days.  Some analysts believe that buying AC is a cheap route to buying BPI and ALI rolled up into one stock.  My theory is that people are trading out of AC and switching into ALI and BPI.  While these two stocks are quite demanding in terms of valuations as they remain to be among the most expensive counters in this market, they have very good track record in preserving value even in a down market.  Both ALI and BPI traded a lot of volume Wednesday day while preserving its price – ALI even gaining – in a down market.  That tells me that some institutional money is rotating into these two stocks.  When I look at MWC and GLO as well, these two have been quite lethargic that I can feel more confident about my theory.  Anyway, ALI remains to be a strong buy as far as I’m concerned.

I am not very surprised that the market has given back some of its gains because I’m of the opinion that it moved ahead of itself due to movements in TEL and MER.  TEL, if you recall one of my previous posts, was a recommended buy by a New York based emerging markets analyst.  The stock rallied a few days after to 2665 from a low of 2300 less than a month ago.  Is it surprising then that people should be profit taking in this stocks.  A few fund managers I know are selling simply to generate cash for what they think will be the next round of buying.

Another theory is that traders are selling their small cap stocks because the large caps are coming off.  When the market turns, it will be the large caps that will see the first move.  If you anticipate that institutional funds are there in the wings looking for entry points, you should be positioning in the large caps.  You can return to the small cap plays later because they tend to be slow when it’s the large cap’s turn to move.

Incidentally, the Php is back above 47 to the US$.  That is good because it will make our market look cheaper.  I for one believe that it is better for the entire economy if we have a slightly weaker Php rather than a strong one.  A strong Php makes exporters unprofitable and creates unemployment.  It also reduces consumer spending arising from OFW beneficiaries due to the simple reason that they are getting less Php from remittances.

Anyway, the bottom line will be the earnings report that will start to come in during the next two weeks.  Seeing that value turnover in the market today was a healthy 3.79 billion compared to yesterday’s 3.43 billion tells me that there is accumulation going on.  One thing for sure, my portfolio is also in accumulation mode.  If I’m wrong, I can afford to hold my breath for a few days.

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October 22, 2009 - Posted by | Financial markets in Asia

2 Comments »

  1. Hi Sir Gus!

    RLC has a share buy back program.

    http://www.pse.org.ph/html/disclosure/pdf/2009/pdf/dc2009-6863_RLC.pdf

    What is your take on this?

    Thanks!

    Comment by Oliver Mia | October 22, 2009 | Reply

  2. Oliver,
    A share buyback is always good because it provides both price support and mops up loosely held shares. Furthermore, because the shares bought back become treasury shares, the outstanding shares are reduced and earnings per share automatically rises. It also means higher proportion of dividends to those remaining shareholders. I already like the stock even without the buy back. The buy back will cause the stock to go up some more.

    Comment by Gus Cosio | October 22, 2009 | Reply


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