Gus Cosio says so

Ideas on the Philippine Stock Market

A good show is worth watching

6:00pm  Tuesday  1 June 2010  Philippine Stock Exchange Index  –  3266.62  (-0.19%)

Over the weekend, I watched the final show of my good friends, The APO Hiking Society. They had decided among themselves that after 40 years of performing together, it was a good time to go while they were still high in their popularity.  This was not the first time they had planned to call it quits, and I was around the few times they had planned a farewell concert and made a performance of it.  This time around, I was sure it was the last show, and the guys had given the show all they had in order to leave their adoring audience a memorable curtain call for the performances forty years.  I had been their friend all these years, and I knew that they really meant it.

The stock market just like show business can be just as fickle.  Stocks have to play to an audience and attract their attention.  Stock prices can reflect their true value, but they can be over or under valued from time to time.

The Philippine market has been rallying for over a year now.  In fact, in comparison to the developed markets, the local market has been performing better year-to-date.  Nevertheless, investors have been quite wary on account of the sovereign debt crisis in Europe.  The fear stems from the possibility of contagion similar to what happened in 2008, a debacle from which many are still hurting.

The question bothering a number of investors is where is this market going.  We saw exceptional GDP numbers last week.  As investment professionals, it is something that we cannot ignore.  The 7.3% growth rate were met with doubt by a lot of skeptics.  If these figures are not verifiable against other measures, then I would probably join the ranks of the skeptics.  But seeing a54.9% growth in electrical machinery, as exports of semi-conductors and electronics products to the US and China boomed, then we can have comfort that the growth was solid.  Recall as well that we have had 4 months of above 40% growth in exports.  First quarter  Meralco sales were 14.2% higher compared to the same period last year, and OFW remittances were 7.0% higher compared 2009-Q1.  Both these figures affirm that the GDP release was indeed credible.

With such a strong GDP growth, the question is how fearful should we be of global contagion.  According to a recent update from Morgan Stanley on the European sovereign Debt Crisis they wrote: ” From a credit perspective Asian financials are beneficiaries as the operating models are intact, capital/liquidity is on average strong, but the regulatory trend is nonetheless credit friendly.” The chart accompanying the statement showed that the Philippines had loan to deposit ratio of roughly around 60%.  The significance of this is unlike the Asian contagion which resulted into capital inflows and bank funding dried up in the Philippines, there is enough funding in the hands of domestic banks to provide the necessary finance to companies operating in the country.

From years of observing the market, I had always seen that it is the availability of cash that drives stock prices particularly when fundamentals support their value.  While I do not foresee an immediate rally in the making, I similarly do not see this market crashing the way it did two years back.  What I am expecting is for the range of 3050 to 3330 to work itself out until good or bad news develops.  So far, I think much of our fears are already in the price.  It is even important in the near term to have a visible view of how your favorite stocks trade.

It is probably best to be counter-intuitive in approaching prices, meaning avoid strong prices and seriously consider weak ones.  A good trader should not be chasing prices these days, and if prices of strong stocks drop, have the boldness to pick them up.  Watching enough of price movements should give an investor or trader a good feel of what is going on.  After all, just as I was totally entertained last saturday, a good show is always worth the money.

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June 1, 2010 - Posted by | Financial markets in Asia

24 Comments »

  1. Thanks for your insights sir Gus. As always, your penchant to find value more than hype has given us a level perspective. Same goes for your taste in value entertainment, which our modern day icon and heroes THE APO (Buboy G. is a mutual friend), has “gifted” us for the last 40 years. But as everything has an end, and we all have to move on, we hope that your GUIDANCE will continue to serve as a beacon for us to follow… also for the next 40 years. More power sir Gus!

    Comment by jojo | June 1, 2010 | Reply

  2. Sir Gus,

    If telecom industry in Phils is approaching maturity, what are the prospects in Asia? Tel for instance is active in telecoms here but it seems not in Indo( please correct me if I got it wrong) considering First Pac have majority Indo shareholders?

    With SMC entry in telecoms, many will be going after the same apple.The big guys of course know the details, but if foreign investors can invest here, how about our cash rich telecom companies find growth abroad?

    Thanks

    Comment by alex | June 1, 2010 | Reply

    • Alex,
      I am sure that there are good prospects down the road for telecom, but for now, the prospects are not yet that clear. There has to be a new story to get the theme going again.

      Comment by Gus Cosio | June 2, 2010 | Reply

  3. By the way sir, DMC 1st qtr 2010 NI growth is quite impressive but I noticed the slow down in the water and real estate business. Driving the growth was construction and coal. Construction is maybe a cyclical sector and while I deeply admire DMC cosntruction projects, I think it may slow down in medium term due to intense competition from the other players e.g. SMDC, ALI, RLC etc. While 3 years ago, the DMC housing is below the radar of the big players now almost all of them have low and mid market segment.

    Appreciate your thoughts on the water segment and the MRT 7 development projects?

    Thanks

    Comment by alex | June 1, 2010 | Reply

    • Alex,
      On DMC, my eye is also on SCC which is phenomenal.

      Comment by Gus Cosio | June 2, 2010 | Reply

  4. Quit when you’re ahead…..Thanks for everything sir Gus…Godbless…

    Comment by tristan | June 2, 2010 | Reply

    • Tristan,
      The more appropriate adage is “He who fights and runs away lives to fight another day!” In the stock market, we can choose our attles.

      Comment by Gus Cosio | June 2, 2010 | Reply

  5. Hi, Sir Gus. I also watched the APO Hiking Society’s farewell concert in Mindanao last week. They’re timeless!

    God bless!

    Comment by Erika | June 2, 2010 | Reply

    • Erika,
      You don’t have to convince me. We’ve been friends since high school and I saw how they developed from school boys to real professionals par excellence.

      Comment by Gus Cosio | June 2, 2010 | Reply

  6. Sir Gus,

    What’s the effect of MEG’s 1:4 stock rights offering on its future price? TIA! 🙂

    Comment by JohnTheMan | June 2, 2010 | Reply

    • John, I think I answered this in the past. The 1:4 stock rights has been in the price since december ’09.

      Comment by Gus Cosio | June 2, 2010 | Reply

  7. Hi Gus,

    I would just like to ask for your opinion re AP and AEV valuation. As of this writing, the price difference between the two has gone up to 2.25 from the 1.5 norm. Even so, AP selling volume totals 6,871,000 from 17-17.5 vs AEV’s 1,542,300 @19.5-20.

    Aside from this, I noticed that AEV moves better than AP. Is the market float of AP that much bigger than AEV’s?

    Thanks!

    Comment by richard | June 2, 2010 | Reply

    • Richard,
      I do not know how wide (or narrow) the price differential will be but the more important measure to follow is the comparative PE. Try to research that.

      Comment by Gus Cosio | June 2, 2010 | Reply

  8. Sir Gus,

    My average price for PNB is 29.50, any thoughts on this price?:)

    Comment by JohnTheMan | June 2, 2010 | Reply

    • John,
      29.50 is cheap for PNB. Keep it for a while.

      Comment by Gus Cosio | June 2, 2010 | Reply

      • I even bought some when they were 31 haha

        Comment by wren | June 2, 2010

  9. Sir Gus,

    With the things going on between BDO and ExportBank, is it cheap to buy BDO @ 46-47 range? Any outlook you can share with us about this stock?

    Thanks,
    Jun

    Comment by Jun | June 2, 2010 | Reply

    • Jun,
      Based on the studies that I’ve read, BDO is not cheap. I’m not too impressed with BDO because it does not have the track record of its peers which are MBT and BPI. BPI is very expensive; MBT is cheaper. My money is on MBT.

      Comment by Gus Cosio | June 3, 2010 | Reply

  10. Sir Gus, what’s your thought on MPI?

    Thanks in Advance.

    Comment by Blade | June 2, 2010 | Reply

    • Blade,
      Buy when it is around ot below 2.80, sell when it is around 3.25. I do not think it will break out for the time being.

      Comment by Gus Cosio | June 3, 2010 | Reply

  11. Sir gus,

    What stock is better to own, DMC or SCC?

    Comment by KennyV | June 3, 2010 | Reply

    • Kenny,
      SCC is not as liquid as DMC but If you have holding power and liquidity is not your concern, I would say SCC. I choose to be in DMC in order to benefit from the SCC story and maintain my liquidity preference. I may sacrifice some return in the process, but that is what portfolio management is all about.

      Comment by Gus Cosio | June 3, 2010 | Reply

  12. Watch out for DGTL today. I don’t know what is happening with this stock but its performance yesterday was amazing (speaking of volume). I don’t know if this occurred in the past already. Is it true that DGTL is eating the market share of TEL and Globe? Other Gokong wei companies is also performing well(URC,JGS and RLC).

    Comment by Olive | June 3, 2010 | Reply

    • Olive,
      I’m not surprised that DGTL is doing better. They’ve been eating into GLO’s market share. TEL’s market share has remained intact.

      Comment by Gus Cosio | June 3, 2010 | Reply


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