6:45 pm Monday 21 June 2010 Philippine Stock Exchange Index 3357.88 (+0.67%)
The news that hugged the international financial headlines today was China’s decision to allow greater flexibility in the renminbi. This caught many by surprise and the initial reaction in equity markets is likely to be positive. Beijing sees this as a re-balancing of the global economy, and it has been welcomed by the U.S. and other trading partners as it should ease trade tensions among them for a while. It will also reduce the need for aggressive hikes in Chinese interest rates, which had worried commodity markets.
This should also reduce the pressure on the safe haven demand for the U.S. dollar because of the positive effect of China’s move on global sentiment. The reduced Chinese intervention on its own currency should lower demand for US Treasuries, and that other Asian countries including Japan will now be more tolerant of strength in their own currencies against the dollar.
The world is indeed changing and values of financial markets continue to adjust. Markets are no longer U.S. and Europe centric as investors choose to diversify into the Asia. Since last year, after the financial crisis in the western hemisphere started to resolve itself, I had mentioned that money will be flowing into our hemisphere. We are seeing a confirmation of this trend, and I think the benefits will be further felt by our market. I would continue to be constructive in Philippine stocks as a result.
I think that MBT could breakout above 58 soon as more investors realize that this is one stock that could be a proxy for the banking sector in the market. I would avoid being underweight in this stock. Among power stocks, EDC is a definite buy and momentum looks to be growing for this stock. My senses also tell me that PNB might be popping up anytime soon. There has been steady volume and strong support at 29 that it could just jump out of this range anytime now.
While DMC has been very strong and looks overbought, I would also be careful not to be without this stock because it could be breaking out soon. Again, its energy and utility components are just too strong to ignore, not to mention the strength of its property and construction businesses. MPI looks oversold and could turn up anytime soon. MPI is in similar businesses as DMC such as water utilities and power.
Among the mining stocks, LC pierced through its 50-day moving average. I would keep an eye on LC because it may have gone past its doldrums already. I would not ignore PX also because of some recovery in mineral prices and the stratospheric price of gold which hit a record high last Friday.
Looking at its chart, MEG might be trading at the high of its range already. I would sell MEG and buy AGI, which is appears to have seen strong support at 5.60. I hear that the hotel and gaming business has gone level up already. URC is also gathering renewed strength with average volume moving up in the past two days. If you like the consumer story, URC will be a strong beneficiary.
I think the China story today will be positive on the whole to the global sentiment. We just have to make the response in our small corner of the world.
9:55 am Monday 21 June 2010 Philippine Stock Exchange Index 3355.04
The S&P 500 index closed a touch lower on profit taking on Friday while the DJIA edged higher. The mixed close looks constructive to me because it hints of consolidation of the broader market while evidence of strength is building among the headline stocks. Technical analysts think that stage is set for a steady to higher opening this week in the U.S. markets. It appears to me that in the absence of discouraging news from the developed markets, things can start looking good locally.
It would not surprise me if people are in a buying mood at the start of the week. MEG and AGI, for instance, are showing good trading opportunities. I think MEG has gained some momentum and the anxieties surrounding the rights issue has been overcome. What I think could break out this week is AGI whose price action looks like it has reason to move a level higher in the next couple of days.
A stock that may be worth the punt today is BPC. I think with the major management moves going on in the company, there should be some new ideas being injected into the company. Also, given that the Lopez family had lost control of Meralco, it would not be surprising if they try to consolidate resources in BPC which is actually the parent company of FPH.
One should also watch DMC this week because it is so close to its breakout point and with the rights offering of SCC being well subscribed, DMC may just take-off to the next level this week. DGTL is also one idea that may be worth taking despite the sluggishness of the telco sector simply because it is the only one of the three major telcos that is showing growth through increase in market share. Of course, enthusiasm remains with its parent JGS. Having said that, perhaps GLO should be sold and TEL could be avoided. Nevertheless, we should watch out for the next dividend declaration announcements because TEL has around 8% yield at these levels.
Among the power stocks, I was having a discussion with a broker friend of mine and he was accumulating EDC for the simple reason that it provides the main growth driver for FGEN and FPH. EDC from a technical standpoint looks pretty much oversold at recent prices.
All told, I think the market is looking rather positive. I feel constructive with the stocks I follow. Some investors will likely go for the banking sector as a proxy for the economy which I think is on a firm upbeat. This week will probably prove profitable for those who play from the long side.