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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