Gus Cosio says so

Ideas on the Philippine Stock Market

It’s our turn

7:00 pm  Wednesday   21 April 2010   Philippine Stock Exchange Index  3204.47 (+1.81%)

The big question in people’s minds would probably be whether today’s bounce was a mere rebound or a continuation of the trend.  Reviewing the action of the market over the past two weeks, I think prior to the recent consolidation, there were mixed sentiment from investors with small investors revealing their anxiety about the forthcoming elections while the institutional fund managers who needed to deploy investments along global themes continued to buy the market.  The focus had been on stocks that had very strong fundamentals that were further supported by the macroeconomic backdrop of the country.  This was why the power sector continued to be strong fueling the strength of the market until it closed round 3300 on Thursday, April 14. We could also observe that the rally which started on the second week of February was running out of steam with two straight days of close just a shade below 3300.  This was followed by profit taking for two days which was exacerbated by the threat of a U.S. SEC suit against Goldman Sachs.  Even on a recovery in Wall Street, this was followed by precipitous selling in the PSEi.

All told, we saw four days of selling-off which took the index lower by 153 points or around a 5% correction.  This is good.  This tells me that investors continue to be rational.  People have not abandoned their prudence in money management and that is reason for strength in stock prices.

On this score, I would like to share a global outlook that was presented by Credit Agricole Investment Bank last Monday in a Seminar sponsored by FINEX.  In a nutshell, the economist was saying that we cannot expect strong economic growth in Europe and the U.S. because of the respective fiscal drags in their economies and the level joblessness that is way above the levels in 2006.  Furthermore, because of the huge deficits that the U.S. and European governments had incurred during the last financial crisis, the soonest that the ratio of the deficits to GDP would come back to normal would be in 2014.  What this implies is a few years of sub-normal growth from the developed economies.  In contrast, Asia ( ex-Japan, ex-China and ex-India) is expected to grow around 5 % because of little or no fiscal pressure, resurgence of exports and growth in consumer spending.  He also forecasted that the U.S. Dollar, the Euro and the Yen will be weak against the rest of the world.

All of these imply that global asset allocations to Asia will likely increase.  The forecast also called for stronger currencies in Asia including the Philippine Peso.  So with this kind of outlook, should we be surprised that our market has remained strong.  The foregoing ideas tell me that not only will global portfolios increase their weighting in Philippine stocks, local investors should also be careful in investing away from local currency.  In short, the outlook tells us that if you are a Philippine investor in financial assets, you should keep it close to home.

Yesterday, on my rebound list were MER, MPI, DMC and SMDC with an eye on MBT and PNB.  I would like to expand this list today to include FGEN, EDC, FPH and AP – all power sector stocks.  The ones to keep and eye on would be AEV and ICT.  I think MER is poised to go above 180 while MPI should easily move to 3.20.  DMC traded between 15 and 15.50 in spite of some heavy selling which only proves that many still view the stock as cheap.  The power sector stock should continue its relentless drive shortly after elections so I think it will be well supported in any consolidation.

I think that people are keeping tabs on the uncertainty of elections but would not like to ignore the existing trend.  That is how I would like to manage my own portfolio – to be attuned to the trend.  I think the up trend in Philippine equities is just in line with how global investors see things.  I think the market is telling us that we will have a manageable exercise of suffrage in two weeks.  It would be easy to ride any bumpiness in the road ahead.

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April 21, 2010 - Posted by | Financial markets in Asia

42 Comments »

  1. Hi Gus
    I am ready to go in the market again. Is it better to take the risk and go in now and be ahead? Or go in when post election is peaceful but risk getting left behind? Thank you.

    Comment by Adrian | April 21, 2010 | Reply

    • Adrian,
      I think at this point one should be around 50% invested. I am 80% invested having bought more MER, DMC and AP when the market came down last Tuesday. I won’t go beyond that until after elections because I want to have some cash in case the market tanks after elections.

      Comment by Gus Cosio | April 22, 2010 | Reply

      • Thanks Gus
        Where do you suggest I park my cash while waiting in the sidelines? I always put it in SDA but has a 30days lockup which is difficult if an opportunity comes up. What other options do I have? Time Deposit is lower than SDA. What about Money Market Funds? Are they as safe as TD or SDA? I understand they are also UITFs and based on NAVPS? Thank you for your advise!

        Comment by Adrian | April 22, 2010

  2. good evening sir gus am already all in, the problem is i didnt get to take out the money last week now the market is falling will it bounce back any time soon average cost mpi 3.60, ict 27, ac 305, pax 3.50. any tips???

    Comment by gerald | April 21, 2010 | Reply

    • Gerald,
      I think you’re doing alright except for PAX which is not really a trading stock. You don’t have to worry about MPI, if you have the holding power. I would sell some AC to get some cash and probably buy some DMC or AEV or AP instead.

      Comment by Gus Cosio | April 22, 2010 | Reply

  3. Sir Gus,

    What price level do you think MPI can reach within this year? And whats your insight on MEG? Thank you.

    Comment by Alex | April 22, 2010 | Reply

    • Alex,
      I have no clue on what price MPI is going to be. I do not try to guess these things. I simply think that MPI realistically should be worth around 4.20, but whether it will get there or not – I cannot guess. I only sense that below 2.80, the market likes it and will likely take it higher. As to MEG, I view the stock as a highly volatile stock which an active trader can make money on if he trades the range. I see the range to be between 1.20 to 1.70.

      Comment by Gus Cosio | April 22, 2010 | Reply

      • Thanks Sir.

        Comment by Alex | April 22, 2010

  4. Hi Gus,

    I see you mentioned ICTSI, at long last. Seems like it would have been a good buy in the high teens and low 20’s. Where do you see the upside from these levels?

    Mike

    Comment by Mike | April 22, 2010 | Reply

    • Mike,
      I was at a seminar last Monday where a foreign investment bank mentioned that ICT had raised US$ 250 million 10 year bonds in the international market with a coupon of 6.5%. That is what called my attention to the stock. I see it benefiting in the light of the rise in volume of global trade. I reckon that if international investors are very warm to their marketable debt, demand for the stock should follow. I do not have a price target. I never do. I just see assets as cheap or expensive relative to other assets. When I sense that its relative value is becoming expensive, it is time to consider selling.

      Comment by Gus Cosio | April 22, 2010 | Reply

      • Sir Gus,

        I’m sorry for disturbing you. I just wanted to get your insight on ICT again after today’s price action. I received a note from my broker earlier saying that they were the top seller of the stock today after the price hit their target price of 28. The note also said that their estimates show the stock to be fairly valued above Php30.00.

        Also, I was wondering whether fair value estimates of different brokerages differ from each other widely? Such that my broker’s take should be more or less in line with others such that they have more or less the same target price?

        Thank you, sir, and more power.

        Comment by Richard Ong | April 22, 2010

      • First of all Richard, I am not a broker and I do not make buy recommendations. I simply try to help readers spot stocks that are worthwhile trading. I am an investment literacy advocate. I do not try to promote stocks as stockbrokers do. When I mention a stock, I do not expect people to act on them right away. What I would like them to do is to study the stock so that they can learn how to trade it. You should notice that from the tone of my writings.
        I for one am watching ICT but have not bought it yet. You will also realize that different brokers have different opinions on various stocks. For example, one broker I had lunch with did not like SCC at all when it was trading at 40. It is now trading at 71. If everybody had the same opinion about a stock, who would be on the other side of the trade. A stock’s price is a result of the collective wisdom of the market place, not just one broker’s opinion.

        Comment by Gus Cosio | April 22, 2010

      • Okay, Sir. Thank you for your reply. I only wanted to understand further how you value stocks on a relative basis since it seems to be the proper approach to investing. The way you filter between the cheap from the expensive, and do so either on the merits of a company or relative to its peers, always seem uncanny.

        A favorite example framework I learned from reading your blog is how to similar stocks and switching between them when their relative values diverged. That approach was a revelation completely changed the way I viewed securities.

        Brokers having different opinions is a truth I will have to hammer in my head. It’s just that sometimes I worry that one broker’s opinion carries more weight than others. Or that sometimes, such opinions can sway the opinions of others. Which why I try to rely more on analytical frameworks, like those I learn from your blog, rather than buy/sell recommendations from brokers.

        The way the market works and the dynamics of traders, investors, and brokers is still something I need to understand fully, and your blog has be very helpful in my study.

        Again, thank you for always taking the time to write your thoughts and reply to our questions.

        Regards,

        R.O.

        Comment by Richard | April 22, 2010

  5. Hi sir Gus, I dont Think this Rally is sustainable and im expecting market turbulence especially next month….US and Chinese Market is in Froth…..

    Comment by troy | April 22, 2010 | Reply

    • Hi Troy,
      You should adjust your portfolio accordingly then.

      Comment by Gus Cosio | April 22, 2010 | Reply

      • What is Market turbulence? It sounds so alien for a newbie in the market, thanks 🙂

        Comment by JimBoy | April 22, 2010

  6. sir gus, why was there a selloff of FPH and FGEN today? thanks

    Comment by marlon | April 22, 2010 | Reply

    • Marlon,
      One or two fluctuations do not constitute a sell-off. The stocks is merely closing within their recent range. Now if you are asking why it went down from Thursday last week to Tuesday this week, the answer is that there was a market sell-off, i.e. the market sold off 150 points.

      Comment by Gus Cosio | April 22, 2010 | Reply

  7. Sir Gus, what is your take on IMI? tia! 🙂

    Comment by JimBoy | April 22, 2010 | Reply

    • JimBoy,
      I don’t like IMI. It has no earnings yet and there is no supply of shares in the market. You could get squeezed and killed trading this share.

      Comment by Gus Cosio | April 22, 2010 | Reply

  8. Hello Sir Gus,
    I bought ICT, AP, AEV , DMC and FPH due to your advice. Sir, I am only 35% invested as of this time. I employ a buy and sell strategy these days, and am planning to do so until election time. Is this a good strategy or should I just buy and hold?When I see that the DOW futures are red, I tend to sell positions. Indeed I am missing out on bigger profits by holding back, but it also keeps me safe. I am so confused as to where the market is headed before and after elections. Do stock prices drop or rise before elections? I hope you can comment sir Gus. Thanks!

    Comment by charmagne | April 22, 2010 | Reply

    • Charmagne,
      No one can really tell whether or not stocks drop or rise before elections. Stock prices, however, drop when there is too much uncertainty and rise when there is plenty of optimism. Optimism and uncertainty can be due to a modicum of factors both economic and political, and sometimes even natural, such as disasters. An investor must learn to gauge uncertainty or confidence in the market looking at how prices behave. The bottom line is finding the correct information and digesting it with proper insight. In the case of our market these days, what I think the market is saying is that they are not too worried about elections, yet.
      Personally, I am holding 80% stocks and 20% cash. I like the market, but I would like to have the ammunition in case this market drops before election day.

      Comment by Gus Cosio | April 22, 2010 | Reply

  9. Sir Gus,
    What is Market turbulence? It sounds so alien for a newbie in the market, thanks 🙂

    Comment by JimBoy | April 22, 2010 | Reply

    • JimBoy,
      Turbulence is a term common in passenger airlines. When they see the flight ahead to be bumpy, you will hear the captain or the chief purser come on the speaker to tell passengers to fasten seat belts due to expected turbulence. I hope you understand now what Troy refers to as market turbulence.

      Comment by Gus Cosio | April 23, 2010 | Reply

  10. Hi Sir Gus, Villar pressured PSE to OK stock rights offering….Villar made billions in illegal stock deals…Sir Gus im happy that your president is NOYNOY AQUINO…

    Comment by Bing | April 22, 2010 | Reply

    • Bing,
      I am not campaigning for Noynoy. I was simply responding to a reader’s query with my honest answer.

      Comment by Gus Cosio | April 22, 2010 | Reply

  11. Hi Gus, What will happen to PSE in the coming days after Sen.Enrile accused Manny Villar of manipulating the market by illegally selling his shares…TY

    Comment by Red | April 22, 2010 | Reply

    • Red,
      Manny Villar’s move in the stock exchange is no surprise to us who have been in the market. It is a well known secret which I would take with a grain of salt. Nobody wanted to rock the boat with Villar because of his subtle arm twisting methods which people would rather evade.

      Comment by Gus Cosio | April 23, 2010 | Reply

      • hi Gus,

        but wouldnt this put the PSE (and investng in the Philippine market in general) in a bad light? that they can succumb to arm twisting tactics by politicos? this happened quite recently and after the PSE has supposedly embarked on a program to professionalize and clean up its old boys club image as well as tighten its oversight after scandals like BW way back in Eraps time.

        Comment by Roberto | April 23, 2010

  12. Hello Tito Gus, Im 50% invested right now..if PSE goes down tomorrow ill sell everything with only 10-8% gain….I think news will be worst 1 week before election….Erap and enrile has started there Black campaign today and maybe more to come next week…

    Comment by Nadia | April 22, 2010 | Reply

    • Nadia,
      I always advise people to invest within their level of comfort. I agree that there should be some election tension that should be factored into the market and I think that these are already discounted by prices. My advise therefore is not to be completely zero in your position. My personal position up to this point is still 80%, but that’s just me. I would recommend around 50% for most prudent investors.

      Comment by Gus Cosio | April 23, 2010 | Reply

  13. Great insight Gus! As always, your view of the market is very informative.

    May I ask what’s your view on the quality of the Lopez management? Say compared to Ayala or Sy or Gokongwei? I have always wondered how they ended up with so much debt and that they needed to sell off their shares in MPTC, Meralco and others.

    Comment by jamie | April 22, 2010 | Reply

    • Jamie,
      Unfortunately, the Lopez track record is not as impressive as that of Ayala, Sy or Gokongwei. I think the recent corporate M&A’s resulted from the weakness of their style. That is not to say, however, that they cannot improve. I think that this is their current mode – consolidation and evolving a tighter management style.

      Comment by Gus Cosio | April 23, 2010 | Reply

  14. hi sir gus, Greece is back….Dubai is coming….

    Comment by roy | April 22, 2010 | Reply

    • Roy,
      I think the Greece story has already been filtered and is coming to resolution. So is Dubai although that is probably a lot more painful for the small population of this emirate.

      Comment by Gus Cosio | April 23, 2010 | Reply

  15. Leverage is a funny thing. It can make you and it can break you. I made a hefty profit buying PNB by leveraging. Now my capital is on the brink of getting wiped out including my profit from PNB bec I stubbornly bought VLL at the highs thinking it will break and it did not. I’m way over my head thinking I can jump from one ship to another without thinking i might fall in the water. I was almost sure about the fundamentals of VLL. Now it’s about to breakdown, I still got til june to pay-up what i borrowed plus interest. Do you suggest me to dump my shares and wait til it settles down? This mudslinging by erap and enrile are pretty much doing all the damage. I am really hurt financially and emotionally as well. Any recommendation will help. Thanks sir gus..

    Comment by richie lim | April 22, 2010 | Reply

    • Hi Richie,

      Out of concern to you, I suggest you dump VLL already and cut-loss and shift it to PNB. VLL will continue to be pounded because of the negative publicity on it as long as the election is not over. I too would avoid politically sensitive stocks such as VLL especially this time of the season. Its only the beginning and Villar’s opponents will heat it up even further as long as he’s still running. Think BW Resources – ERAP.

      Taking debt to buy stocks which are very volatile is never a smart thing to do especially when you don’t have a steady stream of income to compensate for the interest that you will be paying. Get out while it still early and focus on companies that has very good fundamentals. You’re health is more important than money. Just a friendly advice bro.

      Comment by James T. | April 22, 2010 | Reply

      • Additional advice, borrow money from your friends (without interest) and pay-off your loan. You’re playing fire here bro.

        Comment by James T. | April 22, 2010

      • Very sound advise James. I couldn’t have said it any better.

        Comment by Gus Cosio | April 23, 2010

    • Richie,
      I am a believer of cutting loss when it reaches my limit because the risk is the loss gets a lot bigger and too much to handle. Cut and move on.

      Comment by Gus Cosio | April 23, 2010 | Reply

  16. Hi Gus,

    Thursday last week, just as the market came tumbling, I bought ALI and FGEN which then looked attactive to me. When the sell-off happened, both joined the market consensus but closed by only 2 and 1 fluctuation from by buying price respectively. This just proves to me that my valuation last week was fair and that when investors got panicky, many still found value in them. Now that the Goldman fiasco has been negated by strong earnings reports, the only thing keeping our market from setting higher highs is the upcoming elections.

    In any case, I remain confident in my holdings and expect them to rise again. However, I am thinking about lightening up on ALI since the property sector seems to have taken to the backseat. The proceeds of which I would like to put in either ICT or MER. Of the two, I like ICT better because of their international presence and with international trade picking up, I expect them to post good earnings reports in the coming months, even years. I just missed my chance to buy it at the lows and while I think it will still go up, somehow I don’t want to chase it right now. As for MER, I like its price already and with the increase in their charges, I know their next quarterly report will record a significant increase in earnings. Plus the fact that MVP has taken over the company makes me even more optimistic. The power of a good (management) reputation really is impressive.

    Of the two, which would you recommend more. Because to me, their are neck and neck with ICT just ahead by a nose.

    Thanks!

    Comment by richard | April 23, 2010 | Reply

  17. Thank you for the advice sir gus and james. I would like to cut vll and shift again to PNB but i have a time frame. and it is by end of JUNE 2010. My capital got wiped out this morning but thankfully it rebounded at the close to give me a small loss of my capital. CLSA seems very committed with their research tp of 3.45 FV so I will stick to it til my tp is achieved or expiration of loan is due which ever comes first. Again, thank you for the advice. My mind is clearer now and just stay calm and collected amidst volitily.

    Comment by richie lim | April 23, 2010 | Reply


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