Gus Cosio says so

Ideas on the Philippine Stock Market

Holding my breath

8:30 am  Thursday  4 February 2010   Philippine Stock exchange Index   2884.81  (+0.72%) yesterday’s close

Most markets in the region were positive Wednesday with Shanghai, Hong Kong, Singapore and Tokyo showing very comfortable gains.  The Philippine market was similarly up due to a rise in Wall Street and the European markets Tuesday.  Unfortunately, the rise in prices were not that impressive in my view.  The index opened at 2868 and traded up to 2893, went down to 2874 and finally closed at 2884; quite a volatile day.  Volatility reflects a market that is not so confident with its direction.  Furthermore, the up tick in market did not look so convincing given such low value turn over.  Low turnover reflects buyers inhibition to buy, so sellers are not able to clear the supply that they are laying off the market.  It appears that confidence is not yet back in the market.  It looks more like short covering or people buying back small positions in stocks sold earlier.  I expect that there would be further paring down of positions, i.e. selling, before this market finds firmer ground.

I was disappointed that MBT was very weak trading as low as 38.50.  I have not heard any negative news on the stock and I know that its book value is at least 41, so I think this is a stock to watch if it goes down further.  While BPI is an expensive stock because it trades close to 2 X its book value, It is looking cheap at 43.50 – another stock to watch should it go lower.  I am also suspicious why MEG has fallen so much while MEGW1 has remained resilient.  I sense that the market has started to tack in a discount on property shares because of vacancies that developed last year in office spaces and a perceived over-supply of middle market condominiums.  FLI has come off quite a bit since the devastation of typhoon Ondoy.  ALI and RLC, while remaining relatively strong, have not been spared by this recent downturn.  Between the two, my preference lies with RLC because it has a revenue structure similar to ALI but its price is not as expensive measured in P/E and P/B.   As to MEGW1, I suspect traders switching out of MEG into MEGW1 to increase their leverage since MEGW1 can give them more than 2 X volatility for the same amount of cash deployed.

With indices in the developed markets down overnight, I find very little reason for the Philippine market to go up today.  There is some enthusiasm on the domestic economic front as exports and global trade have picked up, Philippines included.  L0cal and foreign economists are forecasting 2.5% to 4% growth for 1Q2010.  I think if EL Nino does not bring too much damage to agriculture, it could be higher.  I also foresee strong earnings for PSE companies this year, so I would use this down turn as an opportunity to cherry pick on stock that I like.  Right now my best picks are TEL, MER, MPI, AGI and DMC among the large caps.  PIP, CMT, GMA7/GMAP and SPH among the smaller caps.

Long-term bond yields are starting to head down again as we experienced a strong FXTN market yesterday.  The low interest rates that moneyed investors have to contend with may just be the impetus for the next recovery move in this market.  I can hold my breath for that.

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February 4, 2010 - Posted by | Financial markets in Asia

6 Comments »

  1. Sir,

    With MEG trading at 1.10-1.14, shouldn’t MEGW1 be trading at around 0.10-0.20? Either one of these two is mispriced.

    On another matter, may I ask for your opinion regarding USD/PHP exchange rate? Just looking at the chart, it feels like PHP may be headed for the low 40s again.

    Thanks!

    Melvin

    Comment by Melvin Marfega | February 4, 2010 | Reply

  2. Melvin,
    The MEG and MEGW1 relationship is not a one-to-one relationship. The MEGW1 will be less elastic on the downside because it values both volatility and time value of money considering that it requires less than half the cash outlay. Yes, it is expensive but not that expensive if you ask me. If MEG fell to below 1 peso, MEGW1 could fall to 0.30 but not much lower.

    Comment by Gus Cosio | February 4, 2010 | Reply

    • On the Dlr/Peso,
      I do not think it could go below 46 this month.

      Comment by Gus Cosio | February 7, 2010 | Reply

  3. Hello Sir Gus,

    how do you think Maynilad’s supervisors’ strike will affect MPI’s price? 😦

    Comment by wren | February 4, 2010 | Reply

    • Warren,
      Management problems are a regular occurrence in companies worldwide. There are emergency measures allowed by law for utilities companies especially with labor matters. I think the greater hurdle for MPI stock price is market sentiment. Management can take care of itself. They eat strike threats for breakfast.

      Comment by Gus Cosio | February 5, 2010 | Reply

      • Thanks Sir Gus! Thanks so much 🙂

        Comment by wren | February 5, 2010


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