Gus Cosio says so

Ideas on the Philippine Stock Market

The disservice of not being in the market

8:00 am  Thursday  13 May 2010   Philippine Stock Exchange Index   3269.48 (+0.2%)

If anyone is in doubt about or stock market, you’d better think again.  When GMA won the election in 2004, the stock market rallied 27%  in the 12 months following.  When Erap won in 1998, despite being in the middle of the Asian crisis, the market still rallied 20% in the succeeding 12 months.  I remember the mid-term election in 1995, we had an unstoppable market.  We saw the same thing in 2007, in spite of the fact that the U.S. market had already started to wobble with the cracks starting to show in the mortgage markets.

There is always optimism that accompanies an election exercise not only because of fresh hopes of remedies to existing problems, but there is always a premium that investors, whether local or foreign, attach to political stability.  With Aquino getting a very clear mandate, there is very little doubt that people will rally behind the program of government that he intends to pursue.  He may even have an easier time carrying them out particularly in the first year because both business and the various interest groups in the country will give him a chance – a honeymoon period, so to speak.

Yesterday, the market was not as strong as the trading day immediately after elections.  Even during the strength of the market last Tuesday, we saw some profit taking by those who made a bet on the success of elections, a risky proposition that paid off.  Why did the market not follow through with the rally yesterday?  Well, it is business as usual.  with the elections over, the market is looking for new drivers.

Overnight, we saw a strong move in the U.S. markets led by technology stocks.  The thing about tech stocks is that they are a definite harbinger of the underlying demand in the real economy, not only in the U.S., but globally as well.  I do not want to harp so much on Europe anymore because Greece is a dead horse that i no longer want to beat. Even China where people have been predicting a housing bubble for the last 12 months has become quite tedious to matter for the time being.  The thing is to notice that markets which are far removed from the various domestic or regional troubles try to carry their intrinsic strength.  Look at Indonesia where investors have been focusing on the stability of both political and economic scene in spite of stormy conditions of markets elsewhere.

What I am saying is that investors ought to focus on what is good about our market, not because we would like to be naive of underlying realities, but because that is what investors will be looking for.  Remember, it will all be a bout money flow; and in a smallish market such as ours, if an additional U.S.$ 500 million comes into our market over the next 6 months, that is enough bring the market up by at least 15%.  In my case, I choose to be fully invested right now and my choice of sector in the next six months would be the financials and those stocks with infrastructure plays.  while we have had good moves already with banks, I think with the exception of BPI and BDO, the banks remain cheap.  These are MBT (my current favorite), SECB, UBP, PNB (still a favored stock), and the newly chosen index stock CHIB.  I am even looking to consider RCB which has been showing signs of resiliency already.  Banks have been a good proxy for the economy in the Philippine equity market and I see the economy gaining further strength as the year wears on.

The 43% growth in Philippine exports in the backdrop of a strong U.S. technology market is a confirmatory indicator since more than half of our exports are technology and electronic products.  Furthermore, with the U.S. economy gaining more traction, I believe we will see further growth in remittances which should provide more money which the local economy can put to investment use.

There will be a lot of good plays in market in the months to come.  I would really urge everyone to increase asset allocation to the equities market.  I had a meeting with some lawyers last Tuesday and before we started the meeting, I had to share my thoughts with them that if one does not have equities exposure over this following 12 months, you will be losing a great opportunity to make money.  That is why I am convincing all my friends, relatives and even my kids to buy mutual funds with equity market exposure, if they do not have the wherewithal  buy stocks directly.  I feel that I am doing them a disservice if I do not try to convince them at all.

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May 13, 2010 - Posted by | Uncategorized

26 Comments »

  1. Thanks Sir Gus! You have always given sound and practical advise for us Filipinos investing in the stock market.

    Comment by Seth | May 13, 2010 | Reply

    • thank you for your compliment.

      Comment by Gus Cosio | May 17, 2010 | Reply

  2. Sir Gus,

    Thank you for the thoughts.

    Metrobank, with its wide branch and client base can promote stock investments quite well if it so chooses.

    Also there are many things that can be bought in installment nowadays, say by credit card at no interest. Cellphones etc whose value diminishes over time. If there is a program say buy P50k worth of bond or stock, pay 6 month no interest via credit card, then young professionals will have investment instead of paying a cellphone that have no value after 4 years.

    Thank you.

    Comment by alex | May 13, 2010 | Reply

    • Alex,
      If you click on a link on the right side of this site which says “Philippine Mutual Funds,” it will take you to the site of http://www.fami.com.ph which offers monthly investment plans for those who wish to set aside exposure to equity or balanced funds. This is miles better than borrowing or leveraging. For those whose savings are not so large, you can get in for as low as 5,000 pesos and start earning equity returns on your money. Just add 1,000 a month and before you know it, you’ll have enough money for down payment on a car or a house. They are also arranging so that the 1,000 a month is debited from your credit card so it goes in automatically.

      Comment by Gus Cosio | May 13, 2010 | Reply

  3. Hi Gus,

    First off, I would like to thank you for slapping me last Friday. Every correction we go through toughens my guts to stick it out with my stock picks. I’ve now recovered all my lost profits, and then some.

    Earlier today, we saw AP bowl over 5 flucs before peaking at 18 (my personal target). I did not sell because of 2 things, first is it reported first quarter EPS of P1.01. At that rate, full year we should see EPS or P4.04 which then translates to a PE of 4.33 at 17.5/share. Hella cheap! Second reason is that buyers immediately erased sellers at 18 and buyers having a queue of a couple hundred Gs. I thought it would still go up. Anyway, with the extremely low PE, it shows that there is still a HUGE upside potential to this stock. Would you recommend averaging up maybe at around 17?

    Also, I would love to hear your analysis on ICT. I bought at 29.5 after falling victim to hypers. I know it’s a good stock but the hyping made me buy it at a price higher than I’d normally be willing to buy at. I say never again!

    As always, thanks! For all the useful and profitable insights and the multiple slaps 😀

    Comment by richard | May 13, 2010 | Reply

  4. Also, I would like to share with everyone what I have noticed between the relationship of AEV and AP. The normal spread between the two is anywhere between P1 and P1.5 but averaging at P1.5, meaning if AP is at 18, AEV should be anywhere between 19-19.5. Last Friday, I noticed the price gap to be a mere P.50, very very low. I knew it would normalise and since AP has been holding its ground at 15, AEV would have to be the one to adjust to maintain the normal spread. True enough, Tuesday we saw the price gap to go back to P1.5. Having said so, if you notice the spread go outside the range, better assess which of the two would move to normalise the difference.

    I woulda put all my free cash on AEV last Friday. Unfortunately, I was already fully invested then. I remain to be.

    Comment by richard | May 13, 2010 | Reply

  5. Hi sir gus!

    Do you think the PNB merger with allied is still pushing through now with Noynoy at the helm of our country?

    Thanks hehe

    Comment by wren | May 13, 2010 | Reply

    • Wren,
      I see no reason why not. If you try to read between the lines of Noynoy’s speeches and interviews, he does not sound like that he will be anti business. I think even if Mar loses, he will still advise Noynoy on business matters.

      Comment by Gus Cosio | May 13, 2010 | Reply

  6. Hi Sir Gus,

    Do you advise taking some profits now?

    Comment by Mal | May 13, 2010 | Reply

    • Mal,
      It really depends on what your objectives are. I am accumulating for a 6 to 12 month horizon so unless I want to rotate to another stock, I’m not reducing my position yet.

      Comment by Gus Cosio | May 13, 2010 | Reply

  7. Thanks, Gus. I am planning to reduce my position in MPI and increase MER instead. I think DMC had gone up too fast and it would be risky to chase it. I’d add to MBT but only if it dips below 52. What do you think?

    Comment by Mal | May 13, 2010 | Reply

  8. Can i ask for some advice? I sold my AP earlier at 17.25 (bought it at 11.75 few months ago). I’m beginning to regret selling it since it went as high as 18. Tomorrow I am planning to buy back AP. What is the best logical price in which i can re-enter? 17 or 16.75? Do you think AP would correct tomorrow since it’s Friday and AP has already gone up 3.25 since before elections?

    Comment by mark | May 13, 2010 | Reply

    • Mark,
      I think AP will go beyond 20. I can’t really say what would be a good price right now because it may not retrace in the near term.

      Comment by Gus Cosio | May 13, 2010 | Reply

  9. What would you prefer right now at their current levels FGEN, EDC or AP?

    Comment by mark | May 13, 2010 | Reply

    • Mark, I would ride with the momentum and go for FGEN for the time being.

      Comment by Gus Cosio | May 13, 2010 | Reply

  10. Hi Sir Gus.

    Now that the election is over, I believe Cebu Pacific is going to pursue their IPO. Is it worth an investment considering their promos currently?

    Thanks,
    Ken

    Comment by Ken | May 13, 2010 | Reply

    • Ken,
      it will always be a matter of relative pricing. If it comes not being too expensive, I think it should be a good buy.

      Comment by Gus Cosio | May 13, 2010 | Reply

  11. Sir Gus,

    What price would be the resistance for FGEN? An estimate would really help 🙂

    Comment by JohnTheMan | May 13, 2010 | Reply

  12. Sir Gus,

    With a time horizon of until year end, which would be the best pick among the three: AEV, DMC, or MBT? Provided I would just be concentrating on one stock?

    Comment by Jerry | May 13, 2010 | Reply

    • Jerry,
      Diversification is always wise. I would allocate 1/3 for each and when you have more cash, add to your positions specially on market dips. I think we are in for a 2 year run.

      Comment by Gus Cosio | May 14, 2010 | Reply

  13. thanks for another wonderful article sir gus! me and my friends are new players and we have been benefiting greatly from your advises. More power to you! 🙂

    Comment by mike tan | May 13, 2010 | Reply

  14. Hi Sir,
    Im standing with a portfolio MPI (40%), FGEN (20%), EDC(20%) and AC (20%)splits. Any advise? Initial plan is to sell MPI. Looking at a 6-12 month horizon, would probably put money on PNB. Can you give me your thoughts pls.

    Many thanks, you blog really helps.

    Comment by mark anthony | May 14, 2010 | Reply

  15. Hi Gus.. MBT and PNB did a nice move today..which of the two do u think has more upside?

    Comment by mike | May 14, 2010 | Reply

  16. Good Day Master Gus. I need help with my holdings ! I bet all my monies on the ff. a long time ago, at higher prices, and up to now, cannot sell any, because im still lossing: Gma7, Pax, AC, Atrk, Lc, Ni, Coat, Imi, Pnx, bpc, fli, fmic, Bdo, Bpi and Smc. I want to start all over again. Can you give me any suggestions. thanks, roberth

    Comment by roberth | May 14, 2010 | Reply

  17. Hi sir,

    Thanks for your blog! Are there any free seminars on mutual funds I can attend to? Thanks.

    Jimzon

    Comment by Jimzon Jimenez | May 14, 2010 | Reply

    • Hi Jimzon,
      Please click on the http://www.save-and-learn.com because they do have regular free seminars. you can send them an email or call them.

      Comment by Gus Cosio | May 17, 2010 | Reply


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