Gus Cosio says so

Ideas on the Philippine Stock Market

Sounds Greek to me

9:55 am   Wednesday   9 December 2009     Philippine Stock Exchange Index  3002.11  (market just opened)

Now is the time for some serious thinking.  The PSE index had reached this cycle’s high at 3130 on December 2 but in the last 4 trading days daily trades had only one direction  –  down.  Overnight in the European and American markets, stock prices took a minor beating generally because of sovereign credit concerns.  On the eve of the U.S. Thanksgiving holiday, Dubai dropped a default bomb on its biggest corporations – Dubai World and Nakheel.  Last night, Fitch Ratings Agency downgraded the sovereign debt of Greece and put a cloud of suspicion on the credit rating of the U.K., something that people never thought would happen.

Essentially, I think some water is being doused on whatever hot money is fueling the last stage of this rally.  I am a very optimistic person and it would be easy to say that this is a very temporary situation, but I would like to be more circumspect about the issues that face the markets today.  The primary issue is the matter of global economic recovery which remains a thorn in the side of the governments of developed economies.  In the U.S. for example, we see leading economic indicators moving better but the recovery of the labor market continues to hang on a string.  The same holds true for Europe and with the debt situation in Greece evolving, it seems that governments may just be overspending to get domestic recovery going putting future fiscal conditions at risk.

I am not an economist so I’ll leave the more profound discussion on global recovery to the two-handed economic analysts.  My concern is what people with investing money react to current conditions.  My view is that the bell for caution will start to ring louder and asset allocation to volatile classes will be markedly pared down.  In our market, I think people will lighten up on blue chips, namely, AC, ALI, BPI, MBT, TEL, GLO, SM, SMPH, BDO and most of the index stocks.  With the recent decline of oil and commodity stocks, the hype on mining stocks could start cooling down.  The plays would probably be limited to specific stocks which have verifiable stories.

One example is MA/MAB which owns the mine adjacent to that of PX.  The prevailing notion is that Philex will try to either work with Manila Mining for the development of the mine or buy the mineral rights altogether.  While I think the mining stocks will continue to see some speculative trading, that is not to say that these stock could move down first before they turn hot again.  The mood in the markets are not as upbeat as they were a few weeks back and it requires a bit of strategic thinking if you want to profit from the situation.  Greece is a country not very close to us, but if it can drag the U.S. market down, it can certainly affect us.

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December 9, 2009 - Posted by | Financial markets in Asia

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