Gus Cosio says so

Ideas on the Philippine Stock Market

Whether you’re right or wrong

10:10 am   Tuesday   26 January 2010     Philippine Stock Exchange Index   2990.86 (+0.77%)  mid-session

Is this the beginning of the end? Today, all markets in the Asia-Pacific are down – from Tokyo to Bombay and from Shanghai to Sydney.  The MSCI Asia-Pacific index has been on a six-day decline initially because of monetary tightening in China and now exacerbated by fears of the Obama plan to limit risk taking by banks.  Essentially, what traders are anticipating is a massive sell-down of equity portfolios held by banks should the Obama bank regulation initiative become law.  Remember the The Glass Steagall Act which limited the speculative activities of American Banks passed in 1933 and repealed in 1999.  That law was passed in reaction to the crash of 1929 and the depression that followed.  It seems that Obama is fighting a new fire with tools from 1933.  It does not make sense to me and if this new Obama initiative passes the U.S. Congress, I think the U.S. is headed for bigger trouble.  Many analysts in the U.S. feel that if these banking laws are passed, there will be tremendous damage to the economy.  It is like going the other way when everybody else is moving towards globalization.

Anyway, I am of the view that greater weight should be put on economic trends rather than on extraneous issues such as this.  The earnings of S&P constituents in the 4Q09 are beating consensus around 5 to 1 and the latest quarterly growth of U.S. GDP is expected at 4.5%, the fastest since 2006.  China’s GDP grew by 10.7% in the same quarter and the full year 2009 growth rate was 8.7%.  So far, so good.

Certainly, one cannot be reckless bringing to mind the Chinese proverb that “it is dangerous to catch a falling knife.”  Better to have the knife bounce first.  what i am saying is that I subscribe to the view that because the Asia-Pacific region will be seeing robust growth and whatever decline in the markets is a counter-trend move.    However, I will not be so reckless to buy this market on the way down.  I would like to see some kind of stability in stock prices first.  I commented to one of our readers that it would be good to have more cash in one’s portfolio in this current market environment.  I think that when one is being assaulted, he should keep some spare ammunition handy.

Overnight, Wall street rebounded, probably from oversold levels.  I am the eternal optimist and believe that markets cannot completely ignore excellent corporate earnings especially when they reflect the pulse of the wider consumer market.  I am referring to Apple’s rise in income by 50% on the back of the sale of 8.74 million iPhones.  The street consensus was for a top line of US$12.06 billion and EPS of US$2.07 per share; it came in at US$15.68 billion a top-line increase of 32% and EPS of US$3.67 a share.  These are results that should impress analysts as well as followers of macroeconomic developments.

Anyway, one swallow does not a spring make although I am more optimistic than that on the top and bottom lines of major U.S. companies.  That should bode well for our market in the near term.  I would like to point out , nevertheless that the six-day decline that we saw till yesterday should be a warning against making very speculative moves.  If you want to stag the market, be sure to do it properly.  Do not manage a short-term trade as if it were a portfolio investment.  I would like to share a quotation from a very successful arbitrageur by the name of George Soros: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Advertisements

January 26, 2010 - Posted by | Financial markets in Asia

2 Comments »

  1. Hi. I’m a newbie in stocks and i’m a follower of your blog. Just want to ask what do u mean by “do not manage short term trade as if it were a portfolio investment”? TIA

    Comment by Juana | January 28, 2010 | Reply

    • Juana,
      Some people buy a stock with a view of selling it immediately. They simply want to take advantage of the stock price’s momentum. That is a short term trade. If such a trade does not work to your expectation, better cut loss and sell right away. Do not keep it as a portfolio investment because your purpose in buying was for a trading horizon. That way, you limit any losses in your portfolio.

      Comment by Gus Cosio | January 29, 2010 | Reply


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: