Gus Cosio says so

Ideas on the Philippine Stock Market

The Road to Perdition

8:30 am   Friday  4 February 2010    Philippine Stock Exchange Index  2914.87 (+1.04)   Thursday close

The 30 point rise in the index was very surprising considering that the Asian neighborhood was down except for Korea which was unchanged.  I imagine that the rest of the region had reacted to the weaker close in Wall Street and the rest of Europe Wednesday in spite of positive earnings result being disclosed by companies like Cisco and Visa.  The U.S. market instead chose to react to disappointing earnings from Pfizer and Shell.  In Hong Kong and China, markets chose to react negatively to the news the a major bank will be issuing new shares to the market. In my view, it is that time of the year when new supply will be coming to the bigger markets forcing fund managers to make room in their portfolios.  Fortunately, it is not the case in the Philippines where there are no new share offering in sight.

In my view, some investors were buying back positions sold at higher levels.  This is most pronounced in the price of MER which traded at a low of 154 last Wednesday, opened at 159 today, traded to a high of 172 and closed at 168.  Perhaps there was institutional buying but I think the punters were all out on this stock.  Nevertheless, I found MER most impressive supporting my view that this will be a stock that should be watched.

Signs that the down trend from January 14 may be starting to reverse. It appears that the strong issues are attracting buyers judging from the price performance of stocks like SM, URC, FPH, MBT, ALI and EDC.  There were some selling at mid-session in the broad market but follow through buying ensued immediately after, indicating that some investors are out looking for bargains.   Over-all, I have yet to be convinced that this move will take us back to the 3100 level that we saw earlier in January.  The damper to my outlook remains to be the weak value turnover.  Yes, we have a lot of punters in the market, but what I am looking for is the holding strength that institutional buyers bring to the market.  These institutional fund managers are not there for the time being.  Similarly, our market is a trend follower rather than a trend setter, and the underlying trend in other markets in the region looks to be a declining one.  While we do not necessarily have to follow them on the road to perdition, expensive valuations would get the better of our stocks and could invite foreign selling for whatever remains of Philippine stocks in their portfolio.

With the Dow down 268 points, people are going to get pretty nervous.  Negative sentiment in New York was sparked by higher new unemployment claims which means the angst about the recovery coming to a tailspin is starting to overwhelm players.  In my view, one jobless claims report does not a doomsday make.  It does, however, bring expectations to greater conservatism.  We should continue to watch the U.S. leading indicators which at this point is maintaining the momentum gained since June 2009.

Do not get me wrong.  I have not turned bearish on this market.  I just believe that a meaningful correction is further on its way and I prefer to stay in the sidelines until the weaker hands are squeezed out.  I would like to behave like a smart housewife and wait until bargains come my way.


February 5, 2010 - Posted by | Financial markets in Asia


  1. Gus, do you reckon the market will go down further to the 2700 level?

    Comment by Czar | February 5, 2010 | Reply

    • Czar,
      I can’t say that it will not go down there; but, I am not negative because of today’s action in some shares. I can’t look farther than next week, and I am looking for the market to bounce on Monday. If the bounce is moderate, then I think we could have sustained support. If it bounces strongly, it could invite further selling.
      My forecast of strong support is 2800 although we could see stronger support at 2750. The 2700 level is not in my landscape for the time being.

      Comment by Gus Cosio | February 5, 2010 | Reply

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