Gus Cosio says so

Ideas on the Philippine Stock Market

Have you heard of Murphy’s law?

11:15 am   Wednesday  14 April 2010  Philippine Stock exchange Index   3296.30 (down 3.6 points from the previous close)

Yesterday the index traded above 3300 for a while in early trade before we saw profit takers selling.   Value turnover was also distorted by close to Php27 billion block sale of SMC and SMCB which was the result of San Miguel’s tender offer.  There was also a block trade for SCC amounting to Php1.25 billion. Taking away the block trade, today’s value turnover still amounts to a shade over Php2 billion, so it was not so bad a trading day.  Nevertheless, I think that the index is hitting resistance again above 3300.

What I observe is that strong stocks remain strong – AEV, AP, MBT, FPH, DMC.  Even today, these stocks remain strong.  The index, however, as of this writing has drifted below 3300.  The stocks that I mentioned earlier remain firm and has moved better in spite of the broad market.

In the U.S., Intel reported better than expected profits.  That should be good for the Philippine economy because it is an indication of renewed demand for electronic component products of which the country is a big exporter of.  In the latest export volume report, the statistics show that 58% of total exports were electronic components.  An export recovery coming at a time of massive spending by both government and election candidates should bode very well for listed companies particularly consumer stocks.  That is why URC has been strong and companies like PIP and JFC.  It could also have some positive effects on SPH who is rolling out its direct selling network similar to that of Avon or AmWay.  The recovery of exports would also provide a good base for property stocks and even cement companies due to higher disposable incomes available to buy or construct dwellings.  The latest figures shown by HLCM and CMT have supported this.

Anyway, I would not want to beat a dead horse again, but in the U.S. last night, I saw some kind of divergence – the S&P 500 went up and the volatility index also went up.  Normally, these measures move in opposite directions.  I think there are early signs of wariness showing up.  The same wariness should have been prevalent in our market but somehow investors have been a lot more optimistic.  Given the country’s economic fundamentals, I would not blame them.  Unfortunately, the politics in this country has a tendency to create havoc in good times.  Many of our countrymen seem to have a penchant for self-flagellation.

What are we to do in time as these?  My common sense tells me that no one makes a mistake by being careful.  I will choose to be patient and wait for prices to come my way.  After all, if this market is really going to be strong, what would missing out on a few points hurt?  If something goes very wrong with elections – Murphy’s law says “If anything can go wrong, it probably will” – it could really hurt, and hurt bad.

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April 14, 2010 - Posted by | Financial markets in Asia

7 Comments »

  1. hi sir Gus!

    in your view what’s a negative scenario for this upcoming elections? thanks! 🙂

    Comment by Jack B. Nimble | April 14, 2010 | Reply

    • Jack,
      The usual things that people are talking about are failure of election due to malfunction of a lot of the PCOS machines, massive cheating by electronic means (although I think this is unlikely), something happens to the leading candidate(s), many areas declared to be under comelec control due to violence or similar civil disturbance, massive power blackouts in the days leading to election, a military junta that intervenes because certain military factions are wary of anti-military dominance in a new government. Actually, you can let your imagination run wild with this concept. The situation exists that things could go wrong and the chances that it could is probably equal to the chances that it won’t.
      That is my point of view.

      Comment by Gus Cosio | April 14, 2010 | Reply

      • thanks for your thoughts sir Gus!! 🙂

        Comment by Jack B. Nimble | April 14, 2010

  2. Hi Gus,

    Our mutual funds were lumpsum placements in 2007 and we were not able to use PCA while the market was down. Under the present scenario for elections, should we withdraw our mutual fund placements and park them in deposit accounts until we see what happens after the elections? Or should we just withdraw the earnings and leave the principal? May we also know your opinion on how much of retiree savings should be allocated to mutual funds, stocks and/or other instruments, if you can suggest any. We started investing in stocks after reading your articles/suggestions. Thank you very much.

    Comment by Bobby | April 14, 2010 | Reply

    • Bobby,
      It really depends on your circumstance. For prudence sake, you should not manage your entire portfolio because if you make mistakes or become too emotional, you might lose it all. I would keep at lest 30% on mutual funds if I were a fulltime stock market investor. If I were only part-time, I would raise it to a minimum of 50%, and if I can only follow my stocks sparingly, I would raise the minimum to 70%.
      You see, the mutual fund manager is working as your portfolio manager. It is to his interest that your fund performs because his earnings really depend on how well the fund performs. His fees are a very small fraction of the net asset value (NAV) of the fund. If the fund grows, he makes more. If the fund shrinks (because of losses or dissatisfied investors), his fees are less.
      I would keep my money in mutual funds. If I am bearish about the market, I should switch a portion of my equity fund to a fixed income fund. Actually, I am cautious in the short term, but long term, I will keep my exposure in stocks either through my own stock positions or through a mutual fund.

      Comment by Gus Cosio | April 15, 2010 | Reply

  3. Hi Sir Gus!

    I would like to ask about PLDT Beneficial Trust fund selling its shares? I’m still new to the market since I just started investing last year, but I don’t quite understand what’s going on with the sale. are they issuing new shares?

    Thanks

    Comment by wren | April 14, 2010 | Reply

    • Wren,
      I asked my source about it. The trust is selling their MPI shares to another entity within their own group. You see, in principle, the MVP management team should not really load up their retirement fund with related party shares. It is just not prudent and employees will eventually revolt because of it. PLDT Beneficial trust have a lot of payouts this year as PLDT streamlines its operations further so they need cash and they cannot keep on holding shares which arise from MVP’s M&A activities. MVP has to get an exit for them and this is one exit that has been provided.

      Comment by Gus Cosio | April 15, 2010 | Reply


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