Gus Cosio says so

Ideas on the Philippine Stock Market

Busy as a bee

5:30 pm  Tuesday  17 November 2009   Philippine Stock Exchange Index 3032.09 (+0.69%)

I mentioned yesterday that EEI was hovering just below its resistance of 2.50.  It closed today at the high as 2.65 with total volume of 11.495 million shares.  While I am not a purist on technical trading, I follow the market logic that when demand for a stock rises, price should follow.  What strengthens my conviction on the stock is the knowledge that it is trading merely 5.4X its historical earnings.  With a multi-billion dollar contract in a natural gas project in Papua New Guinea should only bring earnings much higher.

Another stock that I had recently mentioned was PNB which recently reported 134% increase in 9 months earnings. There was a spike in volume on November 13.  Now the stock is trading just below its resistance of 25.  My fearless forecast is that we will break the resistance soon as investors gather more confidence that earnings in 2010 will remain robust.  I think the only hindrance to the merger with Allied is about to be removed; meaning they are probably close to selling Allied’s holdings in a U.S. incorporated bank.  This is one trade that is really worth a shot.  It’s like shooting fish in a barrel.

One of our readers became concerned about SPH’s disclosure that the board of directors had approved the sale of 30 million treasury shares.  These guys no longer have milk on their cheeks.  They won’t go out making such a disclosure without anything up their sleeve.  My intuition tells me that a major share placement is in the offing.  I’ll probably have the details in a few days.  In the meantime, I’ll just keep my shares after all SPH pays good dividends.

I’d like to remind readers also to keep an eye on MBT which had been re-rated upward by a couple of foreign brokers.  My strategy is to buy MBT on weakness with a view of keeping it in my core portfolio.  For your information, the stocks in my core are AC, MWC, AP, TEL and MBT.  I am also considering adding DMC and GMA7/GMAP in the protfolio.

For the chupiteros out there, I think a play is going on for CMT.  The good thing about it is that CMT is actually seeing significantly higher earnings so it can also be a longer term play. The only downside is the stock’s intermittent liquidity which should be manageable anyway for trading lots of up to 100,000 shares.

MER and MPI made it today to both the most active list and the day’s top gainers.  More and more these two stocks will move in correlation to each other.  I reiterate my view that both these stocks would trade in a range.  The independent variable would be the price of MER while the dependent variable would be that of MPI.  The effective range as far as I perceive it for MER is between 190 to 220.  For MPI, when MER trades close to 220 or even higher, MPI will trade to around 3.00; but when MER trades to the lower end of the range MPI will likely drop to 2.50.  Such a correlation makes both stocks interesting to trade due to possible arbitrage trades on both.

On the whole, the market opened strong once more taking its cue from a strong Wall Street overnight.  Again, PX pulled the plug by resuming what hopefully is not a prcipitous decline.  TEL and GLO moved in sympathy as the index gave back all of the earlier gains.  However, MER and MPI was telling a differnet story while MBT, AC, ALI, RLC and URC were holding on to their gains.  Even FLI, MEG and AGI were showing a credible recovery.  With the market closing generally higher, I reckon most people are pleased with their involvement in the market.  With other plays ranging from possible M&A to block share placements going on, it merely reinforces the view that if activity is a buzz, there are profitable opportunities to be found.

As I write, I observe that Asian equities markets are down except for Jakarta, Shanghai and Manila.  Even the European markets are mostly opening soft.  I guess we can expect more mixed sentiment in stocks in weeks to come, but that is where the excitement in the market comes from.  If all of us shared the same thoughts, we won’t have a market to speak of.


November 17, 2009 - Posted by | Financial markets in Asia


  1. good day sir, Is there a way to find out which stocks are owned by mutual funds in the Philippines? Thanks.

    Comment by jovy | November 17, 2009 | Reply

  2. Hi Jovy,
    I only know the portfolio of First Metro Asset Management Inc. (FAMI). Go to or Others will also disclose in their websites.

    Comment by Gus Cosio | November 17, 2009 | Reply

  3. NET foreign BUY was quite evident for RCBC and MBT..

    Which banking issue would you best recommend sir at this point?? Thanks in advance.

    Comment by clinton | November 17, 2009 | Reply

    • Hi Clinton,
      I don’t follow RCB because I’m not quite impressed by their operations and sometimes liquidity on the stock runs out. But don’t let that bother you. Look deeper for some gems that I might not be aware of. For MBT, I just got a hold of JP Morgan’s latest research and they have upgraded their rating on the stock to upgrade. That makes me biased in favor of MBT. My big bets, however, are on PNB. One of these days you’ll see foreign funds buying and the stock may just go up 30%. It’s just below resistance but volume has been growing.

      Comment by Gus Cosio | November 17, 2009 | Reply

  4. thanks, sir! I have been steadily accumulating Pnb shares while it was below P24, but I was kind of baffled why we hadn’t seen foreign buying YET, unlike the other counters. Thanks always for your market insights. I do find them very useful and utterly hard to go by a trading day without reading them. Let’s just hope my patience in Pnb bears fruit. By the way, you do have Mbt, but no Pnb in your portfolio as I had noticed, right? TIA, sir.

    Comment by clinton | November 17, 2009 | Reply

    • Pardon me for butting in, sir Gus. PNB is still in the process of turning around its operations. NPL ratio is still above industry average and PNB doesn’t have the capability to declare dividends yet. These are probably some of the factors that foreign funds consider in choosing which banking stocks to buy. I think by next year everything would have been pressed smooth. By then foreign funds will be buying and we will be selling!

      Comment by Melvin | November 18, 2009 | Reply

      • I think local players have a big role in the markets liquidity and the way PNB had been trading is a testament to that idea. Foreign funds have not yet been buying PNB probably because they have little confidence in the recovery of the stock. It takes local insight to be able to get the real feel for such a stock whose history is known generally to domestic investors. Foreign funds abandone this stock 10 years ago. I was trading this stock in the millions then. There will always be a following of PNB by locals. When the foreign funds finally realize the sense of local buying, they’ll buy this stock simply because it represents good value at these prices. Our models show that this stock is worth 50. Assuming that it will always trade at 20% dicount to its fair value, that still brings the price to 40. Tell me, is that an unreasonable view?

        Comment by Gus Cosio | November 18, 2009

    • I now have both PNB and MBT.

      Comment by Gus Cosio | November 18, 2009 | Reply

  5. Good day sir Gus,

    I am quite new to your blog. First of all, I would like to say that your blog is the best resource that I have read regarding the phil stock market. Other blogs/forums are full of gamblers/wannabe technical traders who only follow whatever the master of the forum tells them to buy.
    I am quite concerned with the recent disclosures of sph. PD: I own a lot of the stock. Sir, have you read their YTD sept report? It seems that they got pummeled a bit. Combine that with their planned sale of treasury shares and the fund investment story (the last time this rumor came out early sept. it was short lived and the stock went back down in a flash!) and things just get confusing. I think that around 10 million shares have already been crossed for the past 2 trading days. Broker 110 is very active! I know that they have very good management and their business operations are solid but i cant help but worry about whats going to happen. Something seems to be brewing! Am I just being paranoid?

    Thanks and more power!

    Comment by Martin | November 17, 2009 | Reply

    • Martin,
      One thing about the main shareholders of Splash, the Hortalezas, they want their shareholders to profit from the stock. Dr. Hortaleza was so unhappy that his stock tanked after the IPO. That is probably why he wants to consistently pay good dividends. A good portion of his time is spent in looking for ways to get new investors interested in his stock. Perhaps, that is what broker 110 is trying to do for him. Like I said, I like the stock but I’m not married to it which means that while I like it, I’ll hold on to it. That doesn’t mean that I won’t sell it when I feel it should be sold. Fortunately, right now, I still like it. Now if there are a number of things that you do not like of the stock, let me know because I’d like to think about your ideas too.

      Comment by Gus Cosio | November 18, 2009 | Reply

  6. Gus, on another topic, i read in another forum that investors are positioning in property stocks, e.g., RLC, SMPH, in anticipation of REIT implementation. what’s REIT all about?

    Comment by alabanger | November 18, 2009 | Reply

    • alabanger,
      It will take a lot of space to write about reits. I’ll put a summary description on the site in a few days. In my office, we’re already working out ourown reit strtegy.

      Comment by Gus Cosio | November 18, 2009 | Reply

  7. Sir Gus,

    I noticed that the Philippines has the steepest yield in the region. I’m not a fixed income guy, so I can’t wrap my head around why.

    I suspect that more than any other country in the region, the Philippines’ sovereign debt position is perceived to be a riskier proposition by investors compared to alternatives. Improvements in the country’s fiscal position in recent years notwithstanding, efforts to pump prime the economy via government spending has not been matched by efforts to improve revenue/tax collections (and even attempts to dispose of government assets have not materialized).

    So with a rising budget deficit, and inflation expectations probably being revised upward, maybe it makes sense for investors to opt for shorter-term bonds?

    Your thoughts on why we have the steepest yield curve, sir?

    Thank you!


    Comment by Jet | November 18, 2009 | Reply

    • The steepness of the yield curve is not anything that people can manipulate. It is the sum of the opinions of those playing the market and they express their opinion by either selling into the curve or buying it, i.e. with real money. If you think that yields will not stay where they are and will go higher, they will sell securities into the market at those yields. Alternatively, if they think these yields are reasonable going into the future, you will want to buy securities at these yield levels. Inflation expectations, fiscal situation of the government, strength or weakness of the peso, relative yields of other currencies, these all contribute to the shape of the curve. The curve is the product of a dynamic interaction of players in the market as well as a reflection of the liquidity of these assets.
      Studies about the yield curve are numerous as this is a major topic in finance in biz schools such as Wharton, Kellogg, Harvard, Princeton, Yale, Stanford; you name them, if they have finance courses, they have a full semester devoted to the study of yield curves. One book that I learned my yield curve basivs is entitled “Inside the Yield Book.” I think the author is Liebowitz.

      Comment by Gus Cosio | November 18, 2009 | Reply

      • Sir,

        I just got a copy of the book by Messrs. Homer and Leibowitz, and I think its a blast! Thanks for the book reco, and for your brief insights on the dynamics of the curve.

        All the best,


        Comment by Jet | November 19, 2009

      • A friend of mine shared with me that some years back, he attended a talk on fixed income that illustrated the implications of the steepness of the prevailing curve. Back then, he recalled, that the yield curve was pretty steep, where some 4-5% existed between the 4.5% 90-days T-Bills and the 9.5% 10-year T-Notes. The presenter said that for each day that one took that opportunity loss, the more difficult it is to recover that 5% foregone interest earning.

        Now if the investor believes that interest rates will be higher the next period, interest rates should be markedly higher if one were to recapture lost earnings. The presenter even went so far as to say that the longer the low interest rate environment persists, the higher the interest rates must rise in the future to break even and compensate for the low short term rates.

        I understand that in the ensuing months after those periods, interest rates eventually declined (except ROP Eurobonds for the short period following Lehman’s collapse), which means that investors that opted to hold shorts never recovered the opportunity cost of short term investments. And even worse, as they roll over today, the are riding the bottom of the interest rate cycle.

        Anyway, he said that suggested that maybe there is still a case to be made for longer term fixed income investments, and that risk associated with them maybe worth taking. That maybe, all one needs to realize is that that most securities do have cash markets.

        Just sharing.

        Comment by Jet | November 19, 2009

  8. I will be looking forward to your REIT summary. Hope you can also show us how it will affect stock valuation.

    Comment by jovy | November 18, 2009 | Reply

  9. Hi Sir Gus,

    Do you follow a % guide for stocks in your portfolio? like 10% limit for each core stock? Financial gurus in the net stress diversification but we really can’t have 30-40 individual stocks (those that pass our own criteria) since we only have a small market.

    Also, we are doing cost average per month, do you think a lump sum is advisable? for cap trading? for div investing?


    Comment by Drew | November 20, 2009 | Reply

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