Voting with your money?
10:40am Monday 26 April 2010 Philippine Stock Exchange Index 3293.30 (up 48.85 points at mid session)
There were some interesting observable trends that can be seen in the periods approaching elections in 1992 and 2004. Both were presidential elections. The reason that the 1998 elections could not be considered significant was because it happened immediately after the Asian crisis and the Philippine market was in turmoil. What we could see in both elections was that from one month into the elections, the market rallied. In other words, during the peak of election activity, the market seems to adopt a very positive tone. When you look at mid-term elections of 1995, 2001 and 2007, you also have situations of market strength as people prepare to go to the polls. Of course what happens after is a different story depending on the underlying fundamentals of the time. In 2001, for instance, the market became strong as a knee jerk reaction from the change of government, but everything deteriorated soon after elections because the rest of the world went into an economic slowdown.
Anyway, the thoughts remain quite strong in my mind that previous elections had been very profitable for stocks in general. What raised my anxiety in this year’s election exercise is the fact that this is the first automated elections in the country and the process itself rather than the outcome which raises my anxiety. Judging from many news articles in print and on broadcast, thousands of people out there seem to share my anxiety.
With all these thoughts in the back of many people’s minds, why then are stock prices so strong? For one, the trend in the major equities markets remain strong. Furthermore, earnings and economic fundamentals in the U.S. economy support the trend. Locally, earnings and economic fundamentals remain strong as well, so there seems to be reason in the optimism of stock investors. In terms of price action, my instinct tells me that while individual investors have approached this rally will a lot of caution, institutional investors have moved with strong conviction in adding to their portfolios. What you can see is small volume selling and large volume buying up. (Buying up means the trade is initiated with buyers taking the offered volume in the market.) The thin is, most of these buying had been made in the sectors that have strong analyst recommendations.
Notice that MBT surged about the same time at least two analysts from foreign firms as well as a positive note on the Philippine financial sector. MBT was recommended to be the strongest in the sector. Of course, we saw an incredible performance of PNB, but that story was motivated by price recovery and an M&A story. The sector has remained firm with even SECB, UBP and even the odd RCB stayed with the upward momentum.
One very strong move was seen in AC which apparently has some story of buying voting rights over some preferred shares. I do not really understand what the broker was talking about so if any one out there has the right information, please feel free to post it here. My problem is I do not like to buy something that I do not understand.
So this market will be moving ahead until a few days after the Filipinos cast their vote. The shares that I will be following are MBT, PNB, MER, PIP, CMT, DMC, ICT, AP, AEV, SCC, EDC, FGEN, RLC, JGS, SMDC, SM, TEL and URC. I think not much could go wrong with these stocks. The message I want to impart is that investors should keep a portion of their funds in the market depending on their level of comfort on the elections.
Have a good week ahead.
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