Gus Cosio says so

Ideas on the Philippine Stock Market

Louder than words

7:10 pm Thursday  6 May 2010   Philippine Stock Exchange Index  3167.83 (-0.28%)

Judging from today’s price movement, I would like to perceive what the market is telling us.  In spite of the broad market declining, MBT, SECB, MPI, ICT and JFC went up in price.  I think the rise in price of MBT was quite impressive considering that it had traded to a low of 49, and it probably was just knocked down there so that the block trade at 48 could go through.  Otherwise, I think the stock is just too cheap below 50, election or failure of elections.  The other stocks have similar stories which can be generally described as early selling by nervous holders followed buy buying on dips by investors who had been overweight in cash.  Even those stocks which closed below their previous day’s close had traded at lower levels earlier in the trading day.  FGEN for instance traded a slow as 9.60, but closed at 9.70.  I think that part of the reason it got knocked down in the past two days is because it got taken out of the index.  A number of stocks who are not in the index trade quite widely and a stock like FGEN will trade because of its strong fundamentals eventually.

So, what does the price action of the last two days tell us.  The press seems to think that the recent sell-off was due to the glitch in the PCOS machines which will eventually lead to a failure of elections.  Personally, I think that is just the latent pessimism that many Filipinos have because of the over tainted history of elections ion this country.  I think today’s price action tells us that this is not new.  Every election in this country has always been a bowl of confusion because that is what the politicians and their detractors want it to be.  There have been controversy that has surrounded every election in this country for as long as I can remember.  That there is so much skepticism in this election should not surprise me anymore, and I think that is what the market is trying to tell us.

If you ask me, the 3.46% drop in the market yesterday was more widely influenced by the global markets which are all using Greece and Spain as reasons to take profits and raise cash in their portfolios.  Of course, I for one got nervous because of local election jitters, but I may not be representative of the market in general.  If I look at what investors are thinking, at least those that are articulate enough to express themselves, they are more interested in picking the bottom rather than selling.  Perhaps investors in this country have a penchant for self-flagellation, but if one looks at the history of elections in this country, every election had brought about a rally in the market without exception.  This country, in spite of all its flaws, tend to heal itself from crises and controversy and landing with both feet on the ground.

So what is the market and prices telling me today?  I think they are saying that we should look beyond elections.  Yes, prices can fall, but values cannot vanish into thin air.  Consumers will continue to use electricity, telephones, water and public transport.  Families will continue to buy or build homes and go to malls to decorate their houses and acquire appliances.  Their relatives working as OFWs will not hold back remitting money for that would augment their household and educational expenses.

So what is the market saying?  I think it is telling us that we just have to put a number on the stocks we own.  We are in an up cycle that started in April 2009, and cycles normally play itself out from three to five years.  we just finished the first year and have only started the second.  It comes at a time when money is finding a home in this region, and the evidence of that has been strong.

I like observing markets because it reflects the collective wisdom of all participants, not just a few.  Right now, having pulled back around 5.5 % from the highs, the market is showing us that things are not as bad as it sounds on television.  After all, many of those who express opinion on television do not put their money at stake.  Investors who play the market do not do much talking; they just put their wealth on the line.  That to me speaks louder than words.

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May 6, 2010 - Posted by | Financial markets in Asia

19 Comments »

  1. Sir Gus,

    You impress me 100% of the time. More power sir!
    Bdwy, i got MBT at P49, i was so happy haha 🙂 Im still at a loss with FGEN though, but it’s ok, i believe it will eventually recover. Thanks for all the wisdom, without this blog, i probably have a negative portfolio now!

    Comment by KennyV | May 6, 2010 | Reply

    • Good for you, Kenny.
      all the players in the power sector will make money this year and next and well into 2015 because of the growth of the economy and the absolute electricity requirement of our modernizing population. FGEN will surely come back. MBT will likely have strong support at 48.

      Comment by Gus Cosio | May 7, 2010 | Reply

  2. Sir Gus,

    It is always nice to hear from somebody that take a look at the entire forest, not just the trees. Yes, stock prices may fall but it does not mean that companies are going out of business.Look beyond the elections and Greece. There have been tougher times before.

    Thank you.

    Comment by alex | May 7, 2010 | Reply

    • Alex,
      Greece will be a lingering problem for Europe. The bigger challenge is to maintain the common currency. I think that the Euro will eventually fade away. Germany, France, Italy, the Benelux and Austria will likely be the only ones left. After all, except for Greece, they were the original members of the monetary Union. My views arise from the strong economies of Asia that are still developing. The Philippines will surely benefit from the rest of Asia.

      Comment by Gus Cosio | May 7, 2010 | Reply

  3. Sir Gus,

    DMC have been long in your list, now it close at 14.25, what do you think is the best price to enter?

    Comment by Alex_y | May 7, 2010 | Reply

    • Sir Gus, just a follow up question, what can you say about the almost 1000 point sudden drop in DOW yesterday (which later recover to loss 347 point)? Is that indicating a pending crash on the global stock market like years before?

      Comment by Alex_y | May 7, 2010 | Reply

      • Alex,
        I doubt that this is a crash in the making but I would not rule it out. In times like these, it is better to wait.

        Comment by Gus Cosio | May 7, 2010

    • Alex,
      The best price to enter is when there are no distractions in the market. Yes, this stock will probably be a lot higher at the end of 2010, but it wis not very wise to enter into battle when the information is all muddled. I would wait for some sanity to return to the markets before coming back. there is also the elections on Monday. A one day wait is not too long, is it?

      Comment by Gus Cosio | May 7, 2010 | Reply

  4. Good morning Gus, with the disaster and chaos in the US market last nite ( though it could have been caused by an erroneous trade), the specter of election failure and the looming Greece default, i can see a perfect storm coming..the best way to play this market is to be defensive ( Dividend play ).. I would also look at this as one of those ( once in lifetime opportunity to buy stocks at basement prices )… Today could be the day for the Phil markets…

    Would like to know your thoughts on this latest development..

    Comment by mike | May 7, 2010 | Reply

    • Mike,
      Today might be the bottom of the market, and then again it might not. I think it would be prudent to wait for the dust to settle.

      Comment by Gus Cosio | May 7, 2010 | Reply

      • The way the market behave today was quite admirable given the backdrop i mentioned above… was able to bought additional positions in SCC @ 73, AGI @ 5.10 and DMCI @ 13.5

        Comment by mike | May 7, 2010

      • Mike,
        Those are very good entry prices. Try ot to be nervous with every blip. I see SCC going to 100, AGI to 6.50, and DMC to 22 on a 6 to 12 month horizon.

        Comment by Gus Cosio | May 8, 2010

  5. Hi Sir Gus! what a crazy night last night! any thoughts? 🙂

    Comment by Jack B. Nimble | May 7, 2010 | Reply

    • Hi Jack,
      I would like to sit back and really find out what’s going on. It is not always the brave thing to do to plunge into chaos.

      Comment by Gus Cosio | May 7, 2010 | Reply

  6. Hi Gus,

    Markets everywhere are going haywire with a myriad reasons that have been making investors very jittery. What would you advise us to do? Sell or hold? I’m currently holding ALI, AP, DMC, ICT and URC. Of the five, my biggest losses come from URC and ICT, down 15% and 16% respectively. I thought I had resolute confidence in my stock picks and was willing to bet the farm (I actually did bet the farm) that the market will pick up after the elections. After seeing the US markets’ movements this morning, the fears suddenly caught up with me. It has been for a few days but I have kept my resolve until today. Now I feel like Johnny Fontaine in his meeting with Vito Corleone. Please be my godfather and slap some sense into me. I don’t know what to do. I don’t know what to do.

    Comment by richard | May 7, 2010 | Reply

    • Richard,
      Let me slap you around a few times to drive some sense into your mind. You are holding an excellent portfolio. Ali is probably the only one that I would sell if you needed to raise cash. Otherwise, go take a vacation because in a couple of weeks, I think you’ll be less worried. I would be worried if your portfolio were loaded with purely theme plays. This market just needs to squeeze out the weak holders.

      Comment by Gus Cosio | May 7, 2010 | Reply

  7. Hello sir gus,

    I was just wondering what your thoughts are on GLO? I’ve always thought of it as being a very good defensive stocks. Any thoughts on it?

    My portfolio is a mix of banking and power sector as of the moment, this is of course partly from advice found on your blog and partly on my confidnce in a strong economic recovery; is this line of thinking right?

    After all this(including the elections) boils over would you care to share your thoughts on the markets outlook for the rest of the year?

    Norman

    Comment by Norman Go | May 7, 2010 | Reply

  8. i panicked i sold whats left of my ac am thinking of switching it to mpi ict or edc, which is better of the three?

    Comment by gerald | May 7, 2010 | Reply

    • Gerald,
      Of the three, MPI has the best long term outlook because of its infrastructure assets – water utilities, toll-ways, power distribution, health-care. It will like ly trade between 2.60 to 3.25 over the next few weeks. EDC is a pure power generation story. It recently acquired a new geothermal plant which should raise its capacity. EDC will likely trade between 4.80 to 6.00. ICT is a cyclical stock. It had gone up because of the recovery of world trade which is presently in question because of Greece, Spain and Portugal. I think in the short-term, I would be wary of ICT because of the european macro scenario.

      Comment by Gus Cosio | May 8, 2010 | Reply


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