Gus Cosio says so

Ideas on the Philippine Stock Market

Ain’t belly achin’

9:25 am   Monday     8 March 2010  Philippine Stock Exchange Index   3069.63  (pre-open)

Rather than belly ache about the shortcomings of those who run the trading system at the stock exchange, I would like to look at Friday’s unfortunate situation as an opportunity to stand back and look at what the bigger picture looks like going forward.  Over the past few months, we’ve had market shaking news like the Dubai debt crisis, the Obama initiative to remove risk taking activities from banks, and the Greek sovereign debt dilemma which could drag countries like Portugal, Ireland, Italy and Spain with it putting question as to whether the common European currency – the Euro – is in fact viable in the current set-up.

The major economies led by the U.S. have been showing signs of recovery but many skeptics are worried that another dip is not far-fetched.  Economists of the doomsday persuasion are saying that in spite of better than expected employment figures being released, the numbers are not convincing enough to show that the U.S. economy is out of the woods. The pessimists are saying that it is not enough that the economy is losing jobs at a slower pace.  That is probably true, but I am of the opinion that labor productivity in the U.S. has to grow faster either through easing further of wage costs or a leapfrog in output per unit of labor.  I think, now, that property prices have gone down in most metro areas, there is a good chance for wages to ease some more.  High housing prices always underpin wage costs I think.

The U.S. and European markets were strong on Friday as well as most of the Asia pacific markets.  In the U.S., the VIX Index is stable at these lower levels essentially driven by an outlook of low interest rates all around.  The question is whether such a mood will be enough to sustain strong equity prices all around.  Of course earnings have been benign so far.  There remains to be a lot of naysayers in the market which is a good sign.  That means, markets are very rational at this point.

This brings me to understanding how rational the local market will be.  There is an election coming up and it is putting a lid on how far up this market could go.  There is also the EL Nino which is just starting to do some damage.  Already, we are reading news about dams running dry and irrigation to farms running out.  That is not good news.  In the cities, we are experiencing rotating power outages; again, not good news.  Sure we will continue to see low interest rates, but will that be enough to overcome possible downgrades in earnings due to El Nino.  I am getting to be anxious about this weather related trouble because the country is helpless against it.

The sectors that I am afraid might get hurt badly are the power companies notably those who depend on Hydroelectric dams.  Then there is the agriculture sector that does most of the grains and vegetables production.  There should be some impact consumer spending in the rural areas.  Hopefully, this is mitigated by election spending.

That having been said, I think that this coming week should be positive for stocks like TEL, ALI, MEG, EDC and MPI.  I think there would be some skepticism in AP, FGEN and MER because of the rotating brownouts.  There could be some activity in JGS as there had been so many questions in people’s minds about why this stock has not yet followed RLC and URC.  For those with a speculative bone, IP and ISM look ripe for a pop on a pure quant play as volume spiked for these tech related stocks.  For the real opportunistic trader, it might be worthwhile to pick up a little CYBR and wait for that time when parties are accumulating again.

We’ll probably see our market trade higher today; my only advice is not to be careless.

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March 8, 2010 - Posted by | Financial markets in Asia

12 Comments »

  1. Hello Sir Gus,

    I wish to ask you whether the time is right to enter new positions. I am only 50% invested (in TEL) and had been waiting for a correction to reenter some stocks like ANI, PIP , URC and FPH. Do you think this correction back to 2800 will ever happen, or have I just missed out? Some say that this will happen before the Holy Week. In the meantime, there seems to be no stopping the Phisix bull run! Should I still stay liquid ?

    Comment by charmagne | March 8, 2010 | Reply

  2. Hi there Master Gus!

    What’s your take on ACR? Buy?

    Comment by Mark | March 8, 2010 | Reply

    • Charmagne,
      You see, I look at levels in the index as watermarks that guide me. If you were a mariner, you would not approach a pier if it is not above the watermark where it is safe for a boat to dock. That does not mean that all boats cannot approach the pier unless the tide is above the mark. Different crafts will have different decisions. It is the same with this market. With ANI, I have no idea at this moment. With PIP, if you were not able to come in at lower levels, all is not yet lost. URC and FPH are, in my book, buy on weakness stocks which you can hold over the long haul.
      If you are invested, I think this week could be postive, but the higher we go past 3100, I think it would be good to take profits. I would be at least 30% cash above 3100.

      Comment by Gus Cosio | March 8, 2010 | Reply

      • Thank you very much for your reply, sir. I will buy some PIP and FPH tomorrow. Again, thanks!

        Comment by charmagne | March 8, 2010

    • Mark,
      I think ACR is a speculative buy because you’d be waiting for the Tampakan portion of the Alcantaras to be folded into it. Is it worth the risk? I think that it is more than a 50-50 chance of pulling through.

      Comment by Gus Cosio | March 8, 2010 | Reply

      • More than a 50-50 chance is good for me! tnx!

        Comment by Mark | March 8, 2010

  3. Good day Gus,

    I have been monitoring MPI lately, I have seen a huge volume bought at the 2.90 – 3.00 levels. Are investors seening this stock to reach around the 3.50 any time soon to reap the rewards? Also whats causing it? Thanks so much for enlightening Newbies (NOOBS in the terms of my young generation) like me =D

    Comment by Raymund | March 8, 2010 | Reply

  4. Raymund,
    What MPI has going in its favor is that it holdings of Meralco will be folded into a 50-50 joint venture vehicle with Piltel call Beacon Electric Holdings. The advantage to MPI is that it relieves them the huge burden of funding further increase in holdings in Meralco since beacon can fund itself commercially. Now, I don’t know if MPI will move to 3.50; what I am sure of is that at 3 pesos per share it is a good value stock. My advise is if you like the stock, buy it. If you don’t like it avoid it like the plague. If you ask me to guess the future price, your guess is as good as mine.

    Comment by Gus Cosio | March 8, 2010 | Reply

  5. Sir Gus, would it be possible for you to again indicate the stocks you are holding, your average price on each stock, their percentage share of your total portfolio and your target price for each stock. Thank you. I hope I am not imposing on you.

    Comment by Nel | March 8, 2010 | Reply

    • Hi Nel,
      I am holding: ALI, AMC, BPC, CMT, DMC, LC, MA, OV, PIP, PNB, SPH. I don’t remember the prices exactly. I am positive on some and at a loss on a few.

      Comment by Gus Cosio | March 9, 2010 | Reply

  6. sir gus,
    thanks for your continuing insights in our stock market. am learning a lot from you sir.
    just wanna ask your insights on APC.
    thanks and more power sir….

    Comment by dondon dee | March 9, 2010 | Reply

    • Hi Dondon,
      From what I know, APC holds certain geothermal properties that are being sold to Chevron. Now, what I don’t know is whether the whole property is being sold or a joint venture is being formed. Nevertheless, a development like this indicates changing values for a stock. It is speculative until you know all the details and make a judgment on the value.

      Comment by Gus Cosio | March 9, 2010 | Reply


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