Gus Cosio says so

Ideas on the Philippine Stock Market

Investing exuberance?

9:00am    Wednesday   7 April 2010   Philippine Stock Exchange Index   3253.48  (+2.093)

It was a day when absolutely all the most actively traded stocks had closed up for the day.  I really liked the market as I came to the office Tuesday morning, but I did not expect for the index to rise by 66.71 points.  What puzzles me more is that, in the face of the uncertainty of the coming elections, stock prices continue its march forward. The market may be telling us something here.

There are a few things that contribute to this positive outlook.  There is the economy that looks like it is sustaining its recovery.  If you recall, Meralco power output was up 22.4% in January.  Well, the same economists who use Meralco power sales as a surrogate for economic activity told me this morning that the number is up again in February, this time by 14%.  The telling information is that the growth is coming from industrial sales of electricity.  That indicator is consistent with the export volumes that are also increasing.

Of course, there is also the pumped up consumer spending arising from the campaign activity among candidates.  All around the country, we see printing presses humming loudly, T-shirt makers busily cranking up more of their colorful rags and eating places full of campaign volunteers who mill around after campaign sorties.  Everybody is using their cell phones more frequently and surfing the internet more frequently.  This is on top of the raised level of spending on soft drinks, juices and in some occasions – beer. There seems to be a level of enthusiasm and possibly hope that accompanies this election in spite of all the fears and anxieties that have been raised about failure of elections, GMA machination to extend her term and even a possible post-election Junta.

We had expected that consumer spending would be raised, but the Meralco sales that I mentioned earlier, if you break it down by type of consumption, indicates that the increase in use did not come from consumers but from industrial users.  You can view a monthly economic and market publication at called “The Market Call” at http://www.fami.com.ph to get more details of economic indicators.

So is the market “irrationally exuberant”?  Are investors throwing caution to the wind unmindful that things could go wrong between now and May 10.  For one, I do not think that  and punters alike do not read the newspapers or watch news broadcasts on television.  Practically all possible post-election scenarios have been expressed by our highly opinionated newspaper columnists and radio/TV commentators, so everything looks to be out in the open.  This to me is the process of “discounting” where investors look at the possible even risks, super-imposes the information against macroeconomic and company fundamentals, makes their own conclusion and vote with their money.  Yesterday’s market had value turnover of over Php 4 billion which is a high level of participation in this market so the sentiment appears to be widespread.  Judging further from research coming from both local and foreign stock brokers and investment firms, it appears that investors are looking beyond the election already.

The question is “does this make sense?”  Personally, I would still be prudent because investors should always be and that is 100% of the time.  This means that I would not be fully invested at this point of time.  If I have good level of profits, I would top-slice, i.e. sell part of the portfolio to cash in.  Furthermore, I would sell all of my weak issues even if it were at a loss and just stick to strong liquid issues.

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April 7, 2010 - Posted by | Financial markets in Asia

23 Comments »

  1. Thank you for the advice about being prudent, Sir Gus.
    PNB continues to soar. 🙂

    Comment by Finch | April 7, 2010 | Reply

    • You’re welcome Finch. Remember to keep score, i.e. record the amount of capital you put in the market and how much that portfolio would be at the end of the period. Keeping sore helps you to educate yourself in investment management.

      Comment by Gus Cosio | April 7, 2010 | Reply

  2. Great insight!

    I love this type of entry that explores the underlying activities affecting the market — it really forces me to a bit more critical in understanding the shifts. Thanks, Tito Gus!

    Comment by Nicole | April 7, 2010 | Reply

    • Hi Nicole,
      I always appreciate your comments. Thank you.

      Comment by Gus Cosio | April 7, 2010 | Reply

  3. Sir! whats your Target price for PNB??

    Comment by norman | April 7, 2010 | Reply

    • Norman,
      I responded to the same question a few days ago. I do not have a target for PNB. I intend to hold the stock for as long as it exhibits value. From the studies that I have read, I believe that the book value of the stock is around 50. Of course, a stock can trade below, at, or above its book value depending on investors judge the quality of its earnings. Presently, I think the quality of PNB’s earnings is improving. It should move close to its book value, but of course there will be volatility.

      Comment by Gus Cosio | April 7, 2010 | Reply

  4. Sir Gus what can you say on AEV? Thank you.

    Comment by jm | April 7, 2010 | Reply

    • JM,
      I like AEV. The main drivers of AEV are UBP and AP. I heard some fund managers say that buying AEV is like buying AP at a discount.

      Comment by Gus Cosio | April 7, 2010 | Reply

      • Thank you sir. You are really a big help to us newbie here, just starting trading last January. Sir what is your perception on SMC engaging to highways? What is the difference between SMC and SMCB. Thank you very much sir Gus.

        Comment by jm | April 7, 2010

      • JM,
        SMC and SMCB are the same stocks. SMC is not available to foreigners while SMCB can be owned by both locals and foreigners. I am avoiding SMC for the time being until I m clear about their main business model.

        Comment by Gus Cosio | April 7, 2010

  5. Hi, Sir Gus! I am new in trading and I just stumbled upon your website. Wow! PNB is really soaring! Unfortunately, I don’t have any PNB shares at the moment. I really want to buy a good bulk. I hope I’m not too late. Can you give me an advice as to when I should buy? Should I wait for it to touch 29.50? Would it even dip that low given its current performance?

    Thank you so much. I very much appreciate the kind of information you share here.

    May God bless you more!

    Comment by Nikki Lim | April 7, 2010 | Reply

    • Hi Nikki,
      If I were in your shoes, I would put a bid on at 29.50 or 30 for half of what you want to allocate to PNB so that is it corrects dramatically, say below 28, you still have ammunition to average down. I am still convinced that it will go close to 50 by year end.

      Comment by Gus Cosio | April 7, 2010 | Reply

  6. sir gus, thank u for sharing your expertise, most especially to newbies, pro bono!!!! PNB is roaring!!! bought some at 27. reading your insights is an everyday must-do before trading starts. sir, what could be a good entry point for AGI? thanks again!!

    Comment by marlon | April 7, 2010 | Reply

    • Marlon,
      AGI has broken out when it went past 5.50. At this point you have to make a decision on how strongly you like the stock. May I suggest that you do not make a decision independently of other stocks in your portfolio. If AGI is your high beta stock in your portfolio, buy it when you are bullish on the market in general. If all your stocks are high beta, your decision to buy AGI would be similar to buying any other stock.

      Comment by Gus Cosio | April 7, 2010 | Reply

  7. Hi Sir Gus, thanks very much for your good advice about PNB. I made 20% profit in less than one month….Planning to buyback more if it pullsback next week….More Power to you…GodBless…..

    Comment by Sophia | April 7, 2010 | Reply

    • Me, too, Sir! You are such a blessing! More power!

      Comment by Nikki Lim | April 7, 2010 | Reply

    • Good for you, Sophia.

      Comment by Gus Cosio | April 7, 2010 | Reply

  8. hello sir Gus,what do you mean by ” high beta stock ” and how is these related to your stock selection.Thank you very much and more power.

    Comment by Kelly | April 7, 2010 | Reply

    • Kelly,
      If you look at stock information on Bloomberg.com, you will see various information on metrics of a stock. It would also do you well if you get a book and read on what beta means. Any book on investing will have this.

      Comment by Gus Cosio | April 8, 2010 | Reply

  9. Sir gus, Lucio tan’s brother tanenglian still insists on testifying against him. I say it’s scary to hold pnb until after the elections because if Noynoy Aquino wins, for sure this stock will tank as Aquino would go after the so-called ill-gotten wealth of tan.

    what do you think of this insight?

    Comment by Urgent | April 7, 2010 | Reply

    • Hi urgent,
      My thoughts on the matter is this. First, the ill gotten wealth will not prosper simply because the tracks of the Marcos wealth are all covered. Mariano’s testimony is only as good as Lucio’s meaning it is one ma’s word against another. Ominously, last week, I was just talking to some top lawyers who were very vigilant in legal battles during the Cory government and they were saying that the paper trail on the Marcos wealth always hit a dead end. Secondly, Lucio Tan’s holdings of PNB was acquired starting in September 1999 and completed in 2000 , many years after Marcos left the country. I do not think any lawyer can tie it up to the Marcos wealth.
      Anyway, you don’t have to like PNB just because I do. I like the stock simply because it is undervalued no matter who controls the company.

      Comment by Gus Cosio | April 8, 2010 | Reply

  10. Sir GUs,

    Do you have any news on PIP? There was a large cross at 2.55 from UBS.

    Thanks.

    Comment by jolly | April 7, 2010 | Reply

    • Hi Jolly,
      I have nothing new on PIP. I think it is still good. The broad market may be seeing a consolidation though.

      Comment by Gus Cosio | April 8, 2010 | Reply


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