Gus Cosio says so

Ideas on the Philippine Stock Market

An investor and his dog.

7:00 am  Monday     25 January 2010     Philippine Stock Exchange Index  3023.47 (-2.013%)

It is the last trading week of January and my anticipated January effect has not played out.  The PSEi actually peaked at 3121.91 on 14 January 2010.  The strongest influence in local sentiment has been the U.S. and China.  China has been clamping down on bank credit for speculative purposes while the latest pronouncement from Obama appears to be giving the same message.  I looks like from a regulatory standpoint, these governments are leaning on the banks to reduce their speculative activity.  I think that is what is bringing jitters to investors because of the possibility that banks may have to dump their risk positions in the near term.  If that would be the case, then we should really be bracing up for a period of weak stock prices globally.

I would like to be more realistic, however.  In the major markets, hedge funds and other proprietary traders pour huge sums into leveraged positions creating short term swings in asset prices.  In the Philippines, that is not a reality at all.  In 2009, local investors accounted for 65% of the total value turnover for the year against  35% accounted for by foreign funds.  In the market rally from 2005 to 2007, foreign funds accounted for 70% of value turnover while locals traded only 30% of annual turnover.  There was practically no hedge fund activity in our market in 2009 making this market fundamentally an absolute return type of market.

In my view, the local market will still be liquidity driven while keeping an eye on the relative value of stocks globally.  I am sticking to my view that our market remains in a thee-year up cycle of which2010 will just be the second year.  Domestic interest rates are even lower that dividends earned from blue chips such as TEL, GLO, and BPI.  Other large cap stocks like MBT, AEV, UBP and AP also have good dividend.  A number of intermittently active stocks  like PIP, SECB, GMA7/GMAP, URC, RLC, DMC, EEI and SPH pay good dividend yields.  The question is how low will these stocks go in this cyclical move.

Over the short-term, I think we will see a small rebound this week.  We are already seeing PLDT ADRs bucking the downtrend in New York last Friday.  There are also shares like AP and AEV that bucked the trend.  I think stocks like AGI, PIP, DMC and GMA7/GMAP have good potential at these levels due to the relative value of these stocks vis-a-vis their peers.  There had also been some profit taking that was done earlier in January, and some of this smart money have been looking for a buying window.  Of course, it is quite reckless to buy a market on the way down, but there are big portfolios that will have no choice but to re-balance their positions and do some buying.  That action will eventually provide the buying support for the market which should be a signal to buy.

The reason why I remain constructive on the market is because investment money have not all taken the plunge, therefore, the buying potential of the market is intact.  It would be different if every investor and his dog were all fully invested.  In my view, there a lot of people with money who are yield hungry because there is no yield to be made in in the fixed income asset classes and equities are not yet that expensive.

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January 24, 2010 - Posted by | Financial markets in Asia

5 Comments »

  1. thanks for the insight sir gus

    Comment by wren | January 25, 2010 | Reply

    • Warren,
      You have to take personal care of your portfolio because the market is very tricky. I am relatively constructive because I am not fully invested. This means that I have ammunition to buy the market at lower levels. If one is fully invested, I would recommend some lightening up when the market rallies in order to have some cash for the next dip because I think that we’ll be in a range again for the next couple of months.

      Comment by Gus Cosio | January 25, 2010 | Reply

  2. Sir gus, what about stocks that dipped 30% from my original cost? What should i do with that? ACR in particular. And i am heavy on that. This means I should make 50% in order to recover my losses. It’s very hard for me recover. What can i do about it?

    Comment by Richie | January 25, 2010 | Reply

    • Richie,
      ACR is still a speculative play; but from what I understand, some quarters are trying to structure ACR so that the company could benefit from the Tampakan mine which the main shareholders of ACR own. I can’t tell you if this stock will go up 50% as I was skeptical to come in when someone gave me the tip. The price was already at 1.30 when I was tipped on potential maneuver on the ownership of the mine, and I thought it was too risky a proposition because a lot needed to be done before ACR could benefit. Since you are down a lot, I would suggest that you wait for a bounce before letting go. In my view, there could be a long wait before this stock goes again.

      Comment by Gus Cosio | January 26, 2010 | Reply

  3. thank you for the guidance sir gus. I am truly in pain as to let go. Selling on a state of panic and mania for that matter is truly hard. Yes, my source told me the same thing so i went in and never saw the light of day since.

    Comment by Richie | January 26, 2010 | Reply


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