Gus Cosio says so

Ideas on the Philippine Stock Market

Have a heart!

9:15 am   Friday   23 April 2010   Philippine Stock Exchange  3237.57  (+1.03%)  (yesterday’s close)

The market resumed its course from Wednesday’s 56 point rise.  The significance of this move is that it is a strong follow through coming from an already strong surge.  If Wednesday’s rise was a mere rebound from a change in trend, then we should have seen profit taking or a new selling wave today.  It appears that confidence has remained among investors.  If stock prices were already expensive based on valuation measures, then it would be wise to say that this market is starting to be irrational.  At first, it did not make a lot of sense to me that the markets was moving higher ahead of the May elections.  In other words, I was of the view that risk factor had to be subtracted from stock prices as we approach election day.  I am no longer of that view anymore.  I think the market has read all the bad news and are willing to overlook whatever political disasters accompany this year’s elections.  After all, this country has a history of bouncing back from whatever political turmoil it undergoes.

Having said that, it should not be surprising that I remain engaged in the market although I am setting aside some insurance by keeping cash available.  This implies that I am not 100% convinced that everything will go well.  Fortunately, up to this point, it seems that the trend is very strong.  The domestic economy has resumed its growth path and even the IMF which is always pessimistic about the Philippines has raised its Philippine GDP forecast to 3.8%.  My friends at the UA&P believe that growth will exceed 4% and that forecast is shared by a foreign investment bank that made a presentation early this week.

Again, with the risk of being repetitive, I continue to like the strong stocks in the market.  An hour ago, I looked at some stock filters which a friend of mine follows and what it tells me is that there is scope for achieving a 15% return on a stock portfolio over the coming six months.  Today, we saw stocks like URC, EDC, ICT and AC recover lost ground.  We also saw some strong stocks retreat such as MBT and FPH.  One of my favorites – PNB – looks to be staying put.  Personally, I like it that stocks are moving within reasonable bounds.  This strengthens my view that investors are not acting irrationally in the face of potential political uncertainty.

On the fixed income front, the Bureau of Treasury just finished its launch of its multi-currency OFW bonds which has received tremendous response.  Again, this is good news for the local financial markets.  It tells me that Filipinos want to put their money to work within domestic uses.  I have been in the market for a few decades already and it is only now that I can sense a sustained level of demand for Philippine assets.  In the years 2000 to 2004, much of Philippine money had been restless and had flown all over the world with very little being left to fuel the domestic capital market.  For a few years now, the process seemed to have reversed and domestic wealth has become more comfortable staying in the country.  That is a structural and a psychological change that I believe will cause a more speedy development of the local capital markets.

The U.S. market tanked for most of the morning in spite of good earnings result from Microsoft and Amazon.com.  It was the good results coming from financial stocks and the data on improved conditions in the housing market that pushed stock prices to recover.  In the U.S., investors appear to be wary of having too little in their equity portfolio.  I sense that investors in the Philippine market might feel the same.  If you ask me now what one should do with investable funds, I would say keep it invested at home (invested in Philippine stocks) because home is where the heart is, and we Filipinos have a lot of heart.

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April 23, 2010 - Posted by | Financial markets in Asia

18 Comments »

  1. 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 has lower rates 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 23, 2010 | Reply

    • Speaking from experience bro. If you need your cash within 30 days to maximize upcoming opportunities, I suggest that you just keep them as they are – cash. Over allocating your cash to UITFs or Mutual Funds for short term gain would not be advisable as these companies charge a fee for managing your fund. Since these funds also use your cash for stocks/bonds as well, their NAVPS will just mirror the movement of the market which you already track and invest in.

      Comment by Jon | April 23, 2010 | Reply

    • Hi Adrian,
      If you click on the link on this site that says “Mutual Funds in the Philippines,” it will take you to the site of save-and-learn.com.ph where you can see a family of funds one of which is a money market fund. If you traded stocks in the U.S. or other developed markets, you would usually have your portfolio tied to a money market fund which will be your parking lot when you want to underweight yourself in stock. There is no downside risk on money market funds.

      Comment by Gus Cosio | April 23, 2010 | Reply

  2. 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. Also, if you can share your view of ALI.

    Thanks!

    Comment by richard | April 23, 2010 | Reply

    • Hi Sir Gus! I really enjoy reading your site, it’s very informative!

      Sir, as a follow-up to Richard’s comment, do you think ICT is a good buy at its current price? Are your thoughts still positive on MBT? I bought mine at 50 to 51, I was torn between PNB and MBT, and i decided to go with the latter 🙂

      Thanks!

      Comment by bunny | April 23, 2010 | Reply

      • Bunny,
        I think MBT will be moving up again soon. MBT is one of the strongest recommendations of a couple of foreign investment banks. As for ICT, if you pick up MBT at 51 or below, then you can post a buy for ICT at 27.50.

        Comment by Gus Cosio | April 26, 2010

    • Hi Richard,
      My first choice is MER but ICT follows closely. This is because to me MER’s improvement is very visible while ICT’s performance is prospective. I’ll wait for a correction in ICT. As for ALI, while I like the share, I think RLC offers the same business prospect in a cheaper stock rated by NAV and Price Earnings ratio.

      Comment by Gus Cosio | April 26, 2010 | Reply

  3. Hello Sir Gus,

    I enjoy reading your blog because of the insight you give us and how you don’t simply say that this stock is a “must-buy” or “no-good”. I’m just wondering though, where i can get all these data. If it is possible for a private investor like me to get them. I look at my online broker’s data and the PSE data and some of them are dated 2008 or 2009. How do i stay updated with say the actual book value or the fair price of a certain stock.

    Comment by Norman Go | April 23, 2010 | Reply

    • Norman,
      You will have to do a bit of homework. There are a number of internet sites like Bloomberg or even Yahoo Finance. Then there is the company’s Investors Relations website page. Then, there is the PSE website.

      Comment by Gus Cosio | April 26, 2010 | Reply

  4. Hi Sir Gus,

    Do you know anyone from PSE? I ask because the last two Weekly Market Watch Reports from PSE.COM fails to download. I was wondering if maybe you can call their attention to it. I am sure it would be a great help to me and others too. I tried emailing them, but I think they don’t bother reading emails. This is also not the first time that these reports cannot be accessed.

    I find these reports very useful, one use of which is looking at the price to book value (which Norman Go above is interested too).

    How can they expect people to invest their hard-earned money if PSE itself can’t be relied upon to provide us these information.

    I also read somewhere, in a PSE memo I think that they encourage the public investors to participate or be vigilant in their companies. How come PSE don’t lead the way.

    Sensya na po sir gus if I am complaining here in your blog. Pero Hay Naku…

    Comment by jovy | April 23, 2010 | Reply

    • Jovy,
      Why don’t you send PSE a hard copy letter and cc: the board. I’m sure the board will get it.

      Comment by Gus Cosio | April 26, 2010 | Reply

  5. Hi Sir!

    I just observed that the number of comments in your blog has reached an all-time high of 41…so far. I’m just toying with the idea of tracking them as indication of breadth of market participation.

    I’m still holding my PNB from last year, and also EEI. My targets are far, far away.

    A friendly reminder : low salt, low fat diet.

    Melvin

    Comment by Melvin | April 24, 2010 | Reply

    • Hi Melvin,

      I just can’t help but comment on your health tips. While I agree with it, I advise everyone not to take it in face value. Fat is required by the body for the amino acids it contains, it’s a matter of choosing the right fat. As for the low salt, I suggest taking the right amount, though I don’t know how much that is. Before I tried a very minimal sodium diet for like a 3 days, I didn’t last. While I was at the gym I noticed my muscles grew tired very easily and one time, my legs even almost gave as I was climbing the stairs. When I asked the trainors about it, they said it was because of my sodium deficiency. And I was on that diet for just 3 days. Moderation is key.

      Comment by richard | April 26, 2010 | Reply

      • Hi Richard!

        The amino acids that the body needs can be obtained from protein sources like meat and milk, not so much from fat. Muscle fatigue may be due more to potassium rather than sodium deficiency. Some medications for hypertension has a diuretic component ( diuretic = drug that makes you urinate more often and more voluminously ) that causes more potassium to pass out with the urine. Severe potassium deficiency can be associated with muscle paralysis.

        But even doctors have a hard time quantifying in terms of actual food intake the total sodium that the body needs.

        Melvin

        Comment by Melvin | April 27, 2010

  6. Hi Sir Gus and followers:

    You may want to check the value of the stocks on May 16, 2008 and compare it with its current prices. I did a little “number crunching” that factors in the price fluctuations,dividends yield and relative market volatility to come up with this date. For many of the financial and holding stocks, this date seems to coincide with the “correct value” of stocks that are discussed in this wonderful site. Do not rely on this very much, i only see the numbers from Bloomberg.com site and not the actual dynamics.

    Comment by Chris Monterola | April 24, 2010 | Reply

    • That is a good idea Chris. Some stocks like TEL, BPI, AC, MBT, SMPH would have good comparative price but earnings are likely to be very different. For stock like AP, AEV, DMC, SCC may be totally out of the field from 2008.

      Comment by Gus Cosio | April 26, 2010 | Reply

  7. hello sir, before i saw your comments i have already sold 3/4 of my ac holings but i dont know where to put them? shoould i go with bpi or meg?

    Comment by gerald | April 25, 2010 | Reply

    • Gerald,
      Why BPI? Why not MBT? Why MEG? Why not RLC or SMDC?

      Comment by Gus Cosio | April 26, 2010 | Reply


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