Gus Cosio says so

Ideas on the Philippine Stock Market

What’s goin’ on?

2:10pm   Thursday   11 February 2010  Philippine Stock Exchange Index   2908.88 ( +1.81%)

As I was on my way to work this morning, an old Motown tune was playing in my mind.  For those of you who still remember the late Marvin Gaye, he recorded a hit in the early seventies entitled “What’s goin’ on?” – a song lamenting the social problems arising from the Vietnam War.  That was almost a lifetime ago, but what grabbed me was the term itself – What’s goin’ on?

When I was working my trading desk in Hong Kong 25 years ago (yes, I am Jurassic), my boss sitting in Tokyo would call in the middle of the day to ask “What’s goin’ on?”  As a securities dealer, I had to have the answers.  I had to be able to say what my roster of investors were doing and what kind of feedback they were giving me – whether they liked the market or not, whether there was an issue they were looking to buy or sell, whether they were waiting for good timing to come in or whether they are just looking to sell and duck in the trenches.

In essence, what is important in the market is not so much what the demagogues are saying.  I remember what the legendary portfolio manager, Peter Lynch had said: “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.” What really matters is what people are doing with their money.  Let us have a look.

After selling positions in the market from 15 January in reaction to Obama’s plan to restrict U.S. banks and further selling on 1 February when the Greece credit crisis blew wide open, selling only stopped on 10 February when Germany indicated that they will help in a rescue initiative.  Philippine investors were right on the heels of this development paring down positions.  With two days of gains in stock prices and over 100 points recovery of the index, I can only observe that investors have started buying back positions that they had dumped earlier.

On a per stock basis, it is obvious that people sold TEL from 2775 level to 2500 where buying emerged.  Punters took profits when TEL rose to 2555 yesterday, but at 2520, buyers have come back.  If you ask me, those buying today are strong fundamental buyers who are willing to put out cash for value – a headline stock that is trading at 12.4 X trailing earnings, offering dividend yield of  8.21%, and showing a return on equity of 32%.  Am I seeing it correctly?

When AC got sold down to its 6 month low of 260, Ayala themselves started to buy their own shares in the market.  It as never been a cheap stock, but if they are willing to put cash into it, that is telling something about AC’s value.

SM had not been much of an exciting stock, but in the latest downturn, this stock was holding its own.  Today, as yesterday, it gained quite creditably with even rising volume indicating more cash being put to work at SM.  With MPI, we saw a lot of investor nervousness, but in the last 3 trading days, anxiety looks to have developed into a lot of confidence.  MPI was among the highest value turnover in the last 4 trading days with the price recovering strongly.  The strong banks – MBT and BPI – are seeing the same reversal of sentiment although a great deal of the cash can be measured as going into MBT.  PNB is also seeing increasing value turnover with a modest recovery in price.

So what’s goin’ on?  Well, what it looks like is after a healthy profit taking bout resulting from anxieties over international events, investors are getting their heads together and tucking away stocks of value.  I think form here on in, investors will try to buy the dips, after all the local business environment together with the rest of Asia is in much better shape than the west.

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February 11, 2010 - Posted by | Financial markets in Asia

16 Comments »

  1. Sir Gus,

    Is this a start of another rally like what happened from March to November of 2009?

    Comment by Norlan | February 11, 2010 | Reply

    • Norlan,
      I wouldn’t be that hasty yet. I sense that the index will trade in a range for the rest of this month. I see some pull back in the next couple of days in the market as a whole, but individual stocks could do better than the market.

      Comment by Gus Cosio | February 11, 2010 | Reply

  2. Hi Sir Gus,

    Do you think it’s a good time to enter the market? I have not been trading the past couple of weeks because of the negative sentiments in the market. But I’m waiting for the right time to enter again and recoup my losses.

    Comment by chinchin | February 11, 2010 | Reply

    • ChinChin,
      it really depends on what you are watching. If it is TEL, I think at these level -2500 to 2520- it is a safe bet. MBT -36 to 39 should be okay. I think PIP is ok at 2.10. I’d wait for a pull back of MPI to below 2.50. PNB, I like even at this price. AP is very strong; so is SM. FGEN and EDC are pretty safe at these levels. I see an opportunity in BPC at 2.85; I can’t really tell you that it will not go down anymore. I just think that the values of certain stocks at this point are reasonably priced. You also have to understand, I have a long term involvement with this market so I am watching with both patience and money management in mind.

      Comment by Gus Cosio | February 11, 2010 | Reply

      • Thanks a lot Sir Gus. When I checked the prices now, I was surprised to see MBT at 41. Didn’t have the chance to buy on it’s low. Do you think MEG is a good buy?

        Comment by chinchin | February 12, 2010

      • Chin,
        If you are looking for a short term trade on MEG, I think I am not sure that the price would be surging in the next few days. Much of the selling in the downturn from January 15 happened in the 1.26 level where a good amount of volume was dumped into the market. I thin it would be prudent to wait for a pull back to around 1.16 to 1.18 to get back into MEG.

        Comment by Gus Cosio | February 12, 2010

  3. Hi, Sir Gus,

    I remember you saying that you believed that the market would not be trending in the short term and that it would be more or less range bound. I was wondering if you could share with how one can trade individual stocks in such a range bound market. For example, MPI, if one got it at 2.22, and chart-wise, the resistance is at 2.70, does one sell at that price (to lock in profits) and just pick up again below 2.50? Or even MBT at 46.50 with possible resistance 40.50…

    Would really love to hear your thoughts on how to trade in a range bound market. 🙂

    Thanks, sir!

    – Jet

    Comment by Jet | February 12, 2010 | Reply

    • Jet,
      You’re probably a lot smarter than I am. You’re idea is absolutely right. Having bought MPI at 2.22, selling at 2.70 or so should give your portfolio a good return. The same goes with MBT, if you got it around 36.50 or 37, you can start selling above 40. The key to all these is patience and analysis. My pitfall is that when I sell too soon in a range, I either get impatient or enamoured with a stock. You must learn to be unemotional about your portfolio. I’ll try to have more ideas on how to trade this range in the next few days.

      Comment by Gus Cosio | February 12, 2010 | Reply

      • Hello Sir Gus,

        Looking at it for the long-term though, do you think it’s wise to keep holding on to MPI when you bought it at 2.22? Considering that El Nino is coming up

        Comment by wren | February 12, 2010

      • wren,
        If you own it at 2.22 and you’re still holding to it, you should be looking to average up on pull backs from 2.70. That way you’ll be increasing your position at a price below the market. When MPI makes its bigger move past 3.00, you’ll have be very pleased with yourself. In essence, if the market is still positive as it is today, I’d suggest that you hold on. When it approaches 3, you can sell a portion of your position, just in case it pulls back. But I don’t recommend that you sell all when you are playing the range. My perceived sell region is the PSEi approaching 3100.

        Comment by Gus Cosio | February 12, 2010

      • I can absolute relate to selling to soon or too late in a range. I understand from people far wiser than myself that it’s difficult to make money in a ranging market. That it takes diligence and studying to do so, and some luck, I guess. I take your advise to heart and be as unemotional as I can about my portfolio. Thanks, Sir Gus and I look forward to hearing more of your ideas on how to trade a range.

        Rgds,

        Jet

        Comment by Jet | February 12, 2010

      • Thanks so much sir gus!

        Comment by wren | February 12, 2010

  4. Hi Sir Gus,

    What’s your take on MER, I bought it at 162 and will patienly holding it until the acquisition date of MVP. It didn’t closed strong today but on a weekly chart, it seems bullish.. thanks in advance for your reply.

    Comment by Ken | February 12, 2010 | Reply

    • Ken,
      Because in my view, our market is trading a range, I would not hold MER that long. Today, MER closed at 172. I think it could go to 176 and anything above that, I think it is reasonable to sell the stock with an equally reasonable chance of buying it again lower.

      Comment by Gus Cosio | February 12, 2010 | Reply

  5. I read that Moody’s downgraded the subordinated and hybrid securities of several banks in Asia today included some locally listed ones. I suppose the immediate impact of this development would be on the hybrid securities themselves, but I wonder how investors’ perception about the outlook of these banks… there shouldn’t be, right, Sir Gus? 🙂

    Will try to read up more on this over the weekend.

    Rgds.

    Jet

    Comment by Jet | February 12, 2010 | Reply

    • Jet,
      If you observed the swift downward movement in the prices of BPI and MBT right after the Greece crisis blew up, I think that reflected the anxiety over changes in credit ratings. Personally, I think that the center of gravity, as far as credit risk is concerned, has shifted. It used to be that the U.S. and European banks were the reference of credit quality. After the credit crisis of the past 2 years, the situation has radically change. People from the West have not yet come to accept this objectively but judging from the movements in credit default swaps, the smart money has perceived the shift already.

      Comment by Gus Cosio | February 12, 2010 | Reply


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