Gus Cosio says so

Ideas on the Philippine Stock Market

An opportunity to rejoice

3:15 pm   Tuesday   4 May 2010   Philippine Stock Exchange Index  3290.68  (+0.018%)

I would like to start by saying that I am glad that Monday was a non-trading day for the PSE.  Wall Street did not seem to appreciate the fact that U.S. real GDP grew by 3.2% for the first quarter 2010 following a fourth 2009 quarter surge of 5.6 percent. Analysts were expecting a gain of 3.4 percent.  So, the DJIA, the S&P 500 and the NASDAQ all came off with a thud only to reverse the move on Monday.  Latest data have been showing a good recovery in consumer spending as well as inventory build up by manufacturers.  So while concerns exist because of the European situation and the Goldman’s investigation, the underlying trend in the U.S. market appear to be intact.  Bottom line is still earnings growth which does not seem to present any doubt at all under present economic circumstances.

If we look at Philippine stocks, those that matter have turned in good results so far.  MBT reported 1Q2010 earnings of Php 2.5 billion.  The stock was down today, but that is because people seem to misunderstand the fund-raising they did last Friday where they did a private placement of Php 5 billion with institutional investors and simultaneously issuing new shares to the selling investors resulting to an increase in Capital Stock of the same amount.  I think what worried the investing public was that the placement and replacement were mad at a price of Php 48 per share.  It is always cause of worry when shares get distributes below the current market price.  The reason why this does not worry me is because the shares remain in very strong hands.  It is not as if the placement was made with opportunistic investors who would sell at the very first sign of profits.  In my view, the EPS dilution is minimal and considering the positive effect of additional capital to MBT’s balance sheet, I think the exercise was well worth the trouble.  Others may disagree with me, but I see MBT rising to above Php 70 within the next 12 months.  That is not bad considering that MBT has the largest paid-up capital among all banks in the Philippines.

Had our market been open yesterday, we would have reacted quite negatively to Wall Street and likely scared away a good number of investors.  Many see the coming elections as an uncertainty, and rightly so.  But, as with all political uncertainties, these things eventually blow away and what persists are the fundamentals of each and every stock.  This is why I have been stressing that if investors were to remain invested during the election period, they should stick to stocks with strong earnings forecast.  Remember that analysts make forecasts already taking into consideration any and all potential adversities that face the economy and stocks.

Today’s price actions tell me that a good number of investors are willing to bet on the broad economy rather than be deterred by the elections.  TEL, SM and ALI are up as we saw AC recover and EDC and FGEN trading strongly.  It was only MER that saw a significant move in price as it traded to as low as 170 from 175 and eventually closing at 171.  I think people were just lightening up on the stock, but now that it is close to the bottom of its trading range, we should see new buyers coming in soon.  I maintain that a stock lIke MER should enjoy premium valuations due to the strength and reliability of its franchise distribution are.

I mentioned that TEL and SM were strong and to me buying these 2 stocks together this reflects a bet on the broad Philippine economy due to the fact that these to stocks affect the lives of practically 70% of all Filipinos.

So we will be seeing some degree of volatility as we saw in the market today, but that is pretty normal.  Even in the U.S., the VIX index futures have been predicting a lot of volatility up to 30 days down the road, and they are not even having elections.  For traders, this volatility should present profitable trading opportunities.  It should be reason to rejoice.

9:00am  Wednesday  5 May 2010

P.S.  The 225 point drop in the Dow is some cause for concern.  Last night’s plunge was the third in 6 days.  That tells me that people are going for cash for the time being.  On the local news, as well, was news that the automated election marchines have encountered some glitch.  Although the errors were seen onl for local candidates, I think it is a major cause of concern.  With these two critical factors in mind, I would refrain fromadding to any positions for the time being.  I think that things could get ugly in a few days.

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May 4, 2010 - Posted by | Financial markets in Asia

18 Comments »

  1. Hi sir Gus, Is it time to Chase the Big rally? or forget the Market for a while….Many makes MONEY for the last 4 weeks…Stock Market is a ZERO SUM GAME nothing more nothing less……

    Comment by wilson | May 4, 2010 | Reply

    • Wilson,
      I think you won’t be chasing the market today. You’ll be seeing a major dip, I think.

      Comment by Gus Cosio | May 5, 2010 | Reply

  2. Sir gus,

    Since there was a private placement between in selling MBT shares at P48/share, do you think MBT will fall down to 48 n the comming days? Should i be defensive and place a bid at 48-49 or should i get it at 50, i remember you’re words w/c sounds like “in this market it is good to be defensive”. Would love to hear your insights. Tia!

    Comment by JohnTheMan | May 4, 2010 | Reply

    • Sorry for the typo error, my first line ment “Since there was a private placement in selling MBT shares at P48/share”

      Comment by JohnTheMan | May 4, 2010 | Reply

    • John,
      I think if you are patient, you’ll be able to get some at 49 today. I would be defensive for the time being. Actually, I think that it is waiting time today,

      Comment by Gus Cosio | May 5, 2010 | Reply

  3. Sir Gus,

    In your experience, how does executive compensation plays a role in stock valuations? I noticed that say a holding firm engaged in power pays its top 5 officers an aggregate P150m a year, while another holding firm engaged in real estate and consumers P50m in a year?

    Thanks for the guidance always,

    Comment by alex | May 5, 2010 | Reply

    • Alex,
      Executive pay does not matter because the greater portion really depends on the profitability of the company.

      Comment by Gus Cosio | May 5, 2010 | Reply

  4. Hello SIr,
    Is today a good day to buy stocks or must we wait further? I want to buy AEV,AP,DMC. Im holding FPH , RLC and URC. Thanks sir!

    Comment by charmagne | May 5, 2010 | Reply

  5. Charmagne,
    I would wait a few days if I were you.

    Comment by Gus Cosio | May 5, 2010 | Reply

  6. Hi Sir Gus,

    While we’re playing the waiting game … Based on your experience (e.g. 1986 and 1992 elections and aftermath), what’s the worst downswing and best upswing that the market has managed?

    Comment by mal | May 5, 2010 | Reply

    • Mal,
      this market is nowhere close to 1986 nor 1992. This market has deeper breadth today although it could get deeper. If you stick to the good stocks, they will likely pay dividends while you’re waiting. I do not think that we are at a market top. We’re simply seeing investors becoming extremely cautious and there’s nothing wrong with that.

      Comment by Gus Cosio | May 5, 2010 | Reply

  7. OMG Sir Gus!!! I got MBT at P49 before i read your P.S post! So the market is going down next days, what do you think is the best thing to do? Sell this or keep it and hold my breath? *crosses fingers*

    Comment by JohnTheMan | May 5, 2010 | Reply

    • John the man,
      I would not worry about MBT because in my view, this stock could go to 70 in the next 6 to 12 months. What’s a one peso drop compared to that? if the stock goes to 45, buy some more. Remember, a group of fund managers just recently bought 5 billion pesos worth at 48. They must see something in the price. Of course, markets never move in a straight line. While the short term view is down, I think the market will move better after the elections.

      Comment by Gus Cosio | May 5, 2010 | Reply

  8. Hi sir Gus, Somebody is Playing with ICT….Pump UP and DUMP…just like ASIATRUST BANK & LIHC ….The same People diff. Stocks….

    Comment by Miko | May 5, 2010 | Reply

    • Happens all the time, Miko. That’s why there’s a market. If you like the value, you vote with your money. If you think it is unreasonably priced, you sell it.

      Comment by Gus Cosio | May 5, 2010 | Reply

    • They(Wolfpack) also play with ATI & Right now GSMI and ORE…I called them wolfpack cause they operate in groups..last year Ni was there favorite…

      Comment by Geovani | May 5, 2010 | Reply

  9. Hi Sir Gus,

    Thanks for your insights. DMC has gone down significantly today. I’d like to start buying, but wouldn’t want to jump in too early. What do you think is a nice entry price at which one just averages down if it goes down even further? 13?

    Comment by Mal | May 5, 2010 | Reply

    • Mal,
      I would wait a day or so. If it gets to 13, buy some already but leave some cash on hand just in case it drops some more.

      Comment by Gus Cosio | May 5, 2010 | Reply


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