Gus Cosio says so

Ideas on the Philippine Stock Market

Is it worth the weight?

9:00 am   Wednesday  17 March 2010    Philippine Stock Exchange Index    3085.13 (+0.29%)

Most stocks traded weaker at the open once again led by TEL which sank to as low as 2515.  I was tempted to start picking it up again because it was 20 pesos below the ex-div price, but I guess I was too greedy and missed it.  (I also had to go for an important meeting.)  Anyway, that is water under the bridge now because around the last half-hour of trade, TEL recovered to its neutral price of 2535.  This strengthens my view that should TEL approach 2500 again, it would be a good buy.  What surprised me was MER which opened relatively firm and closed even stronger.  Funny thing is that heavyweights ALI, BPI and MBT alL had this strong spike near or at the close of the regular trading session.  If the market closed higher today, it was generally because of these 5 stock plus GLO.

What this tells us is that institutions appear to be adding their portfolio which is a positive sign for the market.   I would not disagree with that at all considering that economic fundamentals are strengthening and signs of growth in the midst of El Nino are still showing up.  From our contacts in the top Philippine corporations, business has been relatively brisk in this first quarter of 2010 and operations appear to be profitable so far.

One stock that has continued to soar is SMDC which a few of our readers have been inquiring about.  I think it is worth looking at even at these higher levels considering that this has been a neglected stock in spite of wide spread land banking and construction and property development in strategic locations in the metropolis.

Overnight, the U.S. and European markets gained following a mixed performance of Asian stocks.  In Europe, it looks like a further building up of consensus on how to handle the credit situation of Greece.  What is positive in this development is it paves the way for other solutions should trouble brew among the rest of the pigs.

With the U.S., it is all about interest rates and availability of easy money from the FED.  While government support measures are being slowly unwound, the FED is careful not to take away any momentum from whatever growth s building up in the economy.  This fuels enthusiasm of both the business and investment community.  An indication of broad-based strength of U.S. stocks is the S&P index breaking the 1150 resistance.  Investor mood is what is driving this global equities market.

Locally, yesterday’s 5-year FXTN auction also affirms the pervasiveness of low interest rates and bond yields.  I was very impressed when I saw the results.  There was onely 1 basis point difference between the average yield of 6.09% and the high yield of 6.10%; more than that, the auction was 3 times over subscribed.  There is even more news to support lower yields: the value turnover at PDEX (the bond exchange) yesterday was 53.7 billion.  People just do not know what to do with their excess cash.

Having said that, I would be positioning bank stocks like MBT, UBP, BPI, SECB and of course – my favorite – PNB.  I would also be buying the good trading stocks like ALI, AC, TEL, MER, FPH, FGEN and EDC because it will be momentum trading for the time being.  There is no force stronger in any market than the weight of money; and with the excess cash in investors hands right now, you just have to buy this market.

P.S. It looks like something is going on in ISM.

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March 17, 2010 - Posted by | Financial markets in Asia

11 Comments »

  1. Dear Sir,

    Follow-up questions to your response to my question yesterday (I hope you don’t mind). For the valuations you have mentioned at what level does it become a buy signal; for P/E – 10 or less than 10, ROE – 15% or it should be ok if 10% for Philippine companies, Div. Yield – 3% or should always be greater than 3%, P/BV – less than 10?

    I also read in one of your responses that in the Philippine setting a portfolio should always be dynamic. What do you mean about this? Is buy and hold (say for two years or more) not feasible in our market?

    By the way thanks for recommending PIP, it has started to pick up.

    Respectfully,

    Ryan

    Comment by ryan | March 17, 2010 | Reply

  2. ISM’s activity is related to the rumor of SMC’s acquiring its stake in Eastern Telecoms..

    Pip was able to break the 2.4 resistance today…. 🙂

    BTW Gus, is AP a good buy @ 11.75 a pc?

    Regards,

    Mike

    Comment by Mike | March 17, 2010 | Reply

    • Mike,
      Thanks for the ISM info. That makes sense because Eastern has a gateway.
      I’m quite constructive on PIP. Pepsico announced last Monday additional buy back of its shares in the U.S. with the purpose of raising EPS for existing shareholders. It looks like they want to give back better returns to shareholder. As a bonus to PIP’s already strong earnings, sugar prices in the world market has tumbled. It is a bonanza for PIP.
      I tried to buy AP earlier today but I posted at 11.50 so nothing done. It didn’t even get there. Perhaps 11.75 might be where it will come.

      Comment by Gus Cosio | March 17, 2010 | Reply

  3. Hey Sir Gus, heard that AJO is cooking a deal with MVP’s group. Also heard that negotiation with LC of Pangilinan’s group turns sour. Any thought/info on this?

    Comment by Joshua Go | March 17, 2010 | Reply

    • Joshua,
      I have no idea about what MVP is doing with either AJO or LC. You would do better to try to investigate the mineral reserves of both companies. That will determine whether the rumors make sense. As it is, they bought PX because of its producing mines plus its share in almost there exploration projects, i.e. proven reserves of base minerals or hydro-carbons. If the reserves are not verifiable, I think it is dangerous to put money in it. You can trade it but that’s like a game of black jack.

      Comment by Gus Cosio | March 17, 2010 | Reply

  4. Hi sir Gus, I dont think its goodtime to buy Ap or Aev coz it goes down 2 days before ex-div. for me its not a good sign….I think it will continue going downtrend until next week…

    Comment by eric | March 17, 2010 | Reply

    • Eric,
      let me correct you. We are not in a downtrend. I think we are in an up cycle with some corrections going on. That being the case, it is better to be long stocks than to be empty in your position. It is just that from time to time , you should reduce your position to anticipate some corrections. That way, you’ll have money to buy cheaper stocks.

      Comment by Gus Cosio | March 18, 2010 | Reply

  5. Hi Gus,

    Thank you very much for your suggestions for investments. We are patiently waiting for the downtrend of the stocks to the buy levels.

    Comment by Bobby | March 18, 2010 | Reply

    • Hi Bobby,
      Don’t ignore day to day movements as well because it really depends on individual stocks. For example, yesterday, many blue chips were down but TEL was strong. You should have a multi-faceted rather than a monolithic view of the market.

      Comment by Gus Cosio | March 18, 2010 | Reply

  6. Sir,

    The growth of the corporate bond market in 2009 was astonishing. It even reminded me of the IPO fever of 2006-2007. And it seems like there are a couple of corporate bond issues still in the pipeline for 2010. Smart move for companies to tap the debt market while interest rates are at record low. But when interest rates begin to creep up I hope a significant chunk of the PHP 50 billion value turnover of PDEX flows into equities and boost the meager PHP 2-3 billion turnover of the stock market.

    Does PSE ( the company ) also manage PDEX ?

    Comment by Melvin | March 18, 2010 | Reply

    • Melvin,
      The PSE is a shareholder in PDEX I think, but it does not manage it. I think that with large companies able to raise capital easily in the local bond marke, that should be positive for stocks in general.

      Comment by Gus Cosio | March 18, 2010 | Reply


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