Gus Cosio says so

Ideas on the Philippine Stock Market

It’s the economy, stupid!

9:40am   Wednesday   10 February 2010   Philippine stock Exchange Index   2841.11 ( up 40 points already after 10 minutes of trade)

After yesterday’s precipitous drop, we are likely to see some support given the recovery overnight in the major markets.  The European markets rose but not as energetic as the rebound in Wall Street.  The Europeans are reeling from the credit crisis brewing among Greece, Portugal and Spain with Greece being the most vulnerable to financial disaster.  Hope sprung overnight as signs that Germany would be helping in putting together a financial package for the beleaguered Greeks which fueled enthusiasm among U.S. based investors.  It looks like pent-up demand for stocks was unleashed by the hope that the European credit crisis would stop deteriorating.

The good news is that the Greek situation have forced investors to be very concerned about fundamentals.  If we are to focus on the fundamentals of individual markets, then we should see down drafts like the one we saw from the 14th of January as opportunities to bring in cheap stocks to the portfolio.

In Manila, I think that TEL, MPI, MBT and BPI have gone to very cheap levels and are worth buying.  All of these have very strong fundamentals which can withstand shifts in traders’ sentiments.  Stocks like DMC, AGI and the power sector stocks – AP, FGEN and EDC – should be able to preserve value.  I am even quite constructive on MER in spite of the fact that many investors find the stock expensive.  My view on MER is that it should really be expensive because of the high value of its franchise area which is NCR, Calabarzon and portions of Bulacan which accounts for close to 60%n  of the Philippines’ GDP.  For that matter, investors ought to attach a premium on TEL as well given its dominance in the telco space in practically all of the country.

What i like about the recent correction is that we are forming a base of strength in stock prices.  Pretty soon, we’ll have full year results of all listed stocks and the picture of value will be a lot clearer.

I am not very bullish on the property market for the time being as occupancy rates in the CBDs have gone down somewhat.  There have also been shifts in preference of where to locate residences given that much of the residential units supply have been built within flood prone areas.  This should create a drag on developers that have their land bank and existing development in those areas.  My best bet on property stocks would be RLC because of the combination of lease rental income from retail space and excellent location of its middle-income housing developments.  FLI, while having problems of its own, has gone down so much that further downside risk should be mitigated by underlying value.

In the meantime, the down turn in the market showed me how undervalued the top banks are.  MBT is very cheap at its Tuesday close of 36.50 and BPI while not so cheap is a good buy at 40.  I would also avoid ignoring those who could benefit strongly from election spending – GMA7/GMAP, PIP, TUNA, AGI, SPH and practically every consumer oriented stock.

The lesson from the recent market events is that sentiment is not a permanent phenomenon.  Remember what Bill Clinton said when campaigning for president of the U.S. – “It’s the economy, stupid!.”  Well I think, the economy here in Asia is humming quite well and markets will eventually follow.


February 10, 2010 - Posted by | Financial markets in Asia


  1. I agree on what you did with MPI and I managed to get some few bits from it’s lowest price. Thanks for the idea.

    Do you think it is really rooted from the news that MPI and PLTL will create a holding firm for Meralco shares? It seems that it has positive impact on its share price (an RSI surge today) for some time, but I’m not sure if it will really contribute on its value appreciation in the future.

    Comment by Go | February 10, 2010 | Reply

    • Go,
      I’m not really privy to any more information than you are. I simply look at MPI for the value of what it has in its portfolio; after all it is a holding company. To my mind, Maynilad, Meralco and Manila North Tollways are such sure sources of cash flow and earnings that the certainty should be priced with some kind of premium. Likewise, MVP may have had some mistakes in the earlier version of MPI, but his track record for success is wort having confidence in.

      Comment by Gus Cosio | February 11, 2010 | Reply

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