Gus Cosio says so

Ideas on the Philippine Stock Market

Keep those phones ringing!

8:30 am   Wednesday    3 March  2010     Philippine Stock Exchange Index    3061.89  (-0.552%)

In trying to gauge what continues to drive the market, I would like to share two pieces of news I picked up  from Bloomberg today.  The first is the BTr auction of 3-year bonds which fetched 5.160 percent yield.  It was a very strong auction which was more than 3 times oversubscribed and the entire issue was awarded at only one price.  The second was a statement coming from BSP Deputy Governor Diwa Guinigundo saying that Philippines’ domestic financial market is “very liquid” and can cover the government’s funding needs.  This statement was made in the backdrop of the National Government’s plans to issue  multi-currency bonds to OFWs.

What does this tell us?  From what I remember of the  quantity theory of money lessons when I was an economics student, aside from demand for transaction balances, people will either keep your money in interest bearing instruments or if interest rates are pretty low, you will try to find better returns in other assets.  I think this tension between the DoF and the BSP is betraying to us what the underlying demand for assets would be.  Given that returns on 3-year government bonds are below 5% after tax, the case in favor of buying stocks is looking stronger.

Then we see the  market getting more interesting.  While the index is down 17 points, the mood looks to be up-beat.  The stocks that pulled the PSEi down were ALI, MER, BPI, EDC, SM, AEV, PX, RLC, MBT and MWC.  These had been the stronger stocks in the recovery from the lows of January.  Those that kept the index hanging in there were TEL, FHP, AGI, AC, ICT, BDO, DMC, FGEN, FLI, GLO and PSE; these were stocks that were lagging the market.  It looks to that the money does not want to leave the market.   For example, ALI had gone up 6 percent over the past week while TEL was up only 3%, so some investors are selling ALI and buying of TEL.  FPH was strong today because of the closure of the MER option with MVP’s group.  MER, on the other hand, lost some steam because it had become clear that control of MER is no longer an issue.

In the coming days, each stock will be following its own story for the time being.  Sentiment looks constructive except that I think many will be unwilling to add new cash toward new positions.  They will not be pulling cash out as well because there is very little yield elsewehere.  Rotation buying will probably be the flavor of this week, and we are seeing it already among second and third liners.  These stocks usually benefit when rotation sets in.

A piece of good news is TEL which came out with their full 2009 results without any surprises.  Core earnings were Php 41 billion while net income was Php 39.8 billion.  They expect 2010 earnings to be around Php 41 billion as well.  They will be paying out Php 141 dividends this month.  TEL will likely remain firm until ex-dividend date due to the dividend play on the stock.

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March 3, 2010 - Posted by | Financial markets in Asia

25 Comments »

  1. Good morning Sir Gus. What do you think of SPH? I have this stock for quite a while now. But it seems that it’s showing no movement at all. Any news on this stock? I guess this is a Hold for long term?

    Comment by chinchin | March 3, 2010 | Reply

    • Chin,
      There’s nothing new on SPH. I for one am quite disappointed with the share which I’ve owned for quite a while. My only consolation is that it pays regular dividends which comes around june or july. If they pay the same 21 centavos they did in 2009, that would come to a 7.6% yield at today’s price of 2.75 which is not so bad.

      Comment by Gus Cosio | March 3, 2010 | Reply

      • Heard a new management team has been installed in SPH, mainly ex-SMC executives. Expect a turnaround in 2010.

        Comment by alabanger | March 3, 2010

      • Yes,
        They have a new president and CFO who are SMC veterans in consumer products. Actually, things should be exciting this year for SPH>

        Comment by Gus Cosio | March 3, 2010

  2. Hello Sir Gus.

    I’ve noticed that BEL has been trading on heavy volumes since last week, although there were notable cross-trades done in some trading days. Despite this, there were also days when there were no cross-trades but the volume was quite heavy, and the price now, well it seems to be in an upward bias, at least starting mid-February.

    Do you have any information as to this activity? I’ve checked their disclosures in the PSE website but to no avail. Is it also a good time to buy since BEL has been trading in heavy volumes and now hovers near its highest level within a year?

    Thanks!

    Comment by Finch | March 3, 2010 | Reply

    • Finch,
      I do not know exactly what is going on with BEL except that being a property stock, there seems to be renewed interest in property. I see this as a very speculative move because there is no research nor fundamentals backing up the move. It may be that someone is mopping up the shares, so it is not an investment move but a pure momentum trade. My inclination is to buy investment stories because momentum trades are like a toss of the dice.

      Comment by Gus Cosio | March 3, 2010 | Reply

      • Thank you very much, Sir Gus.

        Comment by Finch | March 3, 2010

      • Finch,
        I was able to get more information on BEL. BEL owns a good portion of APC which in turn owns a geothermal field in Mindanao. Reportedly, APC has sold the field to Chevron for a sum that I haven’t learned yet. It is that development that seems to be driving both BEL and APC

        Comment by Gus Cosio | March 3, 2010

      • i don’t think my reply posted last night. but from what i remember last week, i read in the news that the Sy’s got a significant amount of BEL shares @ 1.48/sh. Could anyone confirm please?

        Comment by jakeonline | March 4, 2010

  3. Hopefully they give if not the same, higher dividends this year. Thanks Sir Gus.

    Comment by chinchin | March 3, 2010 | Reply

  4. Hi Gus,

    you think AP is a good buy @ 10.75 and LC @ 0.2250?

    thanks

    Comment by mike | March 3, 2010 | Reply

    • mike,
      It’s just a matter of timing, but AP even at 10.75 is a good buy. LC may not yet move because there was word that the tqlks between them and MVP has been placed on the back burner.

      Comment by Gus Cosio | March 3, 2010 | Reply

  5. Hi, Sir Gus. You mentioned TEL would likely remain firm at current prices until ex-date…

    So assuming that an investor is only holding the stock for the dividends and nothing else, should the investor sell it one day after the ex-date? Is that the way to do it, sir?

    Does it also mean that you expect prices to move south after that date?

    Thanks, thanks!

    Jet

    Comment by Jet | March 3, 2010 | Reply

    • If i may comment Jet, yes you can sell the stock even at the ex-date and still get the dividend, however the price of the stock normally goes down on that same day by approx. the same %age as the div as this has already been priced-in into the stock.. sometimes the drop is even more than the dividend, so the best play here is, you have to wait for a few more days or a month, for the stock price to recover, depending of course on the storyline, and also if you believe on the fundamentals of the stock..

      you have to remember that dividend is subjecto to 20% tax….

      Comment by mike | March 3, 2010 | Reply

      • Mike,
        One correction. The tax on dividend is 10% not 20%.

        Comment by Gus Cosio | March 3, 2010

      • Thanks for the added insight, Mike. I didn’t know about the tax on dividends and would have mostly muffed this trade without that info. Again, thanks!

        Comment by Jet | March 3, 2010

    • Jet,
      I am a fan of TEL but I do not see much upside from here as of this moment. I will continue to watch the stock because if it goes below 2600 again, I will be a ready buyer. Having said that, I think the price will indeed go south after the ex-div date.

      Comment by Gus Cosio | March 3, 2010 | Reply

  6. hi gus,

    if i recall right, PLDT bought all if not most of the shares of PLTL last year. What effect does this have on PLDT’s financial reporting?

    Comment by alabanger | March 3, 2010 | Reply

    • alabanger,
      they made a tender offer for all PLTL shares. The fact that it still trades in the market implies that some holders chose to keep their shares. All income of PLTL will be consolidated into PLDT except that now, PLTL is no longer an operating company but a holding company. Its income will be reflected as its share in companies that it has minority or majority holdings.

      Comment by Gus Cosio | March 3, 2010 | Reply

  7. thanks for the clarification re tax on dividend income…

    Btw Gus,whats your take on the sudden spike in the price of PEP… any story on this one? I bailed out today @ .37/share..

    Comment by mike | March 3, 2010 | Reply

    • Mike,
      I noticed the move in PEP. Unfortunately, I don’t follow the stock. Perhaps, I should start having a look. Thanks

      Comment by Gus Cosio | March 4, 2010 | Reply

  8. Gus, what graduate course is better? Master of Science in Computational Finance, or an Master of Business Administration?

    Comment by JimBoy | March 3, 2010 | Reply

  9. “or Master of Business Administration” rather 🙂

    Comment by JimBoy | March 3, 2010 | Reply

    • i’m a pragmatist, so i’ll go for computational finance.

      Comment by Gus Cosio | March 4, 2010 | Reply

  10. hi guys,from what i read sometime last week i think,the Sy’s were involved with BEL.i think they bought a significant amount @ 1.48 per share?could anyone confirm please?

    Comment by jakeonline | March 3, 2010 | Reply


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