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.
12 Comments »