Gus Cosio says so

Ideas on the Philippine Stock Market

Restless money?

5:05 pm   Monday   7 December 2009   Philippine Stock Exchange Index   3046.63  (-0.5%)

One of the very first trades this morning was the block trade of PX for 452 million shares valued at Php 9.5 billion.  It provides a continuing reminder that mining will still be a play in this market despite the fact that the story is now over for PX.  The most active list today was stacked with mining shares  – LIHC, CPM, LC, MA and MAB.  Actually, gold, silver, copper and oil were down sharply overnight as a result of a firming US currency arising from an outlook that the recovery in the economy is getting firmer.  This was sparked by a strong improvement in the employment figures.

Anyway, I am of the view that the large cap stocks have very little to go by from now until next week.  I somehow feel that the market may be resting from investors fatigue brought about by a relentless recovery of stock prices from March this year.  While we still have some ways to go before we return to late 2007 levels, a lot of serious investors feel that they need a well deserved rest.  What that leaves us are the plays on small caps and possibly mining stocks.  There is reason to believe that serious mining operations should be the object of interest by a number of mainland Chinese interest.  remember, they have been trying to diversify asset allocation out of US treasury bonds which is coming out of their ears.  They already own US$ 850 billion of the stuff and I don’t blame them for not wanting more.  This leaves them to look for assets which are hopefully inversely related to the US currency and the likely asset class is commodities in general and base metals in particular because they are very much an industrial producer that raw material is a prime concern.

Imagine, paper mining companies have already made a lot of money on their stock without having moved a single ton of dirt from their mining claims.  I’m betting that those mining companies whose open pits or tunnel shafts are already in place will eventually be worth more than the mines that are still on paper.  It is just a matter of time.  I think the price action on MA, MAB and LC may be telling us that something is at hand.  With the large caps being sidelined at the moment, there should be restless money looking for action in the mining stocks.

Local interest rates have fallen again with the 91-day Tbill averaging 3.887 in today’s auction.  After the year-end book squaring of banks, I think money market and fixed deposit rates will continue it downward trend forcing investors to take more equity risk.  Watch out for the tail end of this consolidation because it may be time to get into stocks like GLO and SMPH which even now are looking cheap.  The most active share outside the block sale was RLC which incidentally is trading at 1.51times book value compared to ALI which is trading 1.96 times book.  Some institutional funds believe that RLC is a good alternative to SMPH which is trading around 2.83 time book.

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December 7, 2009 - Posted by | Financial markets in Asia

6 Comments »

  1. looks like mining stocks remained in play earlier, sir gus.. with CPM, LIHC, ACR and PX remaining in the 20 most active ones. and you’re right again with MER (dropped towards the 200 level), but would it be “safe” to accumulate on this stock once it reaches a cheaper position? also, what’s your take on the PSEi reaching as low as 3012 today?

    i’d appreciate to hear your thoughts on these sir gus. Thanks!

    Comment by J | December 8, 2009 | Reply

    • Hi J,
      I think there is good reason to see the PSEi lower. I was just huddling with a fund manager this morning and we were in agreement that a deeper consolidation is in the offing. We had seen the market get to the targeted 3100 level with a high of 3130. The question was whether there was room to assault 3200 or not. My personal view was that the space was very tight because valuations had already been played out. I don’t think that we will head too deep south but my instincts tell me that blue chips like AC could get down to 265, GLO to 850 and TEL to 2500. The answer to your question of reaching a low of 3012, I think we’ll go below 3000 today.

      Comment by Gus Cosio | December 9, 2009 | Reply

      • Thank you sir Gus. Your insights are really helpful for beginners like me.

        Comment by J | December 9, 2009

  2. good day sir gus,

    I thank you first for giving a very good insight and honest opinion about our market. It was very helpful to me especially im just novice when it comes to investing in stocks.

    I would like to ask your stand about FGEN regarding to its rights offering, and also about your (long term view) recommendation for MPI.

    Thank you and more power.

    Comment by raffy | December 9, 2009 | Reply

  3. Raffy,
    Basically, I do not like rights issues because they pose uncertainties on valuations. There is, however, a short term play where the price adjustment is not fully reflected. Sometimes, there is a profit spread on the cost of the rights and the opening price ex-rights. Soon after, the price will adjust and you’ll have to get out before it happens. Trades like those are only worthwhile for large trading amounts. If you’re doing it for small trades, the risk reward may not make sense unless you like the stock and are taking a longer term view. Otherwise, just buy it shortly after the price stabilizes ex-rights.
    As for MPI, my long term view is that I am a buyer of the stock close to 2.50 and a seller close to 3.00.

    Comment by Gus Cosio | December 9, 2009 | Reply

    • thank you sir gus for your guide.

      Comment by raffy | December 10, 2009 | Reply


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