Gus Cosio says so

Ideas on the Philippine Stock Market

Ignoring sentiment

6:45pm  Wednesday 23 June 2010   Philippine Stock Exchange Index  3342.97 (-0.26%)

The index came down again today with TEL and ICT moving down further.  Heavyweights AC and ALI contributed some points to the decline.  Even some of my favorites such as AP and EDC are down.  Why then am I not worried?  I guess with DMC and SCC being strong as they are, I cannot generalize that the market is broadly weak.  Other stocks that are high on my buy list such as URC and MER were also firmly bought today.

The market has become rather selective which is a good sign because selective buyers usually are firm hand buyers.  They are selective because they intend to hold the stock until it realizes its full value.  Of course, if the major markets will always bring ripples and even waves to local stocks, but we must not lose perspective of domestic conditions.    In a statement to Bloomberg News today, Economic Planning Secretary Augusto Santos that there are solid indications of underlying strength in the local economy.  Philippine economic growth may exceed the target the government set with manufacturing and service businesses being boosted by global recovery.  Second quarter growth may match or exceed the first quarter’s 7.3 percent pace.  The fiscal crisis in Europe has little effect on the Philippine exports to the region or on remittances from overseas Filipinos.  The government last week raised this year’s gross domestic product growth target to as much as 6 percent, from a previously forecast 3.6 percent after reporting the first quarter expansion, which is the fastest since the second quarter of 2007.

Another factor not to ignore is the fact that sentiment of businessmen and investors are usually upbeat after an election.  That sentiment is being widely felt today.  If that translates to some concrete foreign direct investments into the country in the next six months, GDP growth may really exceed expectations.  Should all of these materialize then saying that the market could be bullish would in fact be an understatement.

What it would boil down to is money management on the part of investors and portfolio managers.  The game will be won by those who can wisely allocate to the market within the ebbs and flows of extreme sentiments.  What I am trying to say is that one should not be overly bullish when everybody else is nor should be overly bearish when people are running scared.  Based on today’s price action, I think players are being quite deliberate and very cerebral in their buying and selling activities.  To my mind, we are seeing market conditions that is mature and may not be subject to panic even when adverse news come out from the developed market.  We have been outperforming Wall Street and Europe so far this year.  We may just follow it through for the rest of the year.

June 23, 2010 Posted by | Financial markets in Asia | 60 Comments

A path to power

9:45 am  Wednesday  23 June 2010   Philippine stock Exchange Index  3336.79

The Philippine market may have gone down a touch Tuesday, but from where I sit, it did not seem that it did.  The stocks that I was very positive with – MBT, DMC and PNB were all up.  Only EDC was down and by only a fluctuation.  I came to the conclusion when the market closed that all was still well.  I reckon the ones holding TEL and ICT were the only ones that felt the drop of the market.

Anyway, I cannot instinctively reduce my positions for the time being because I cannot help but feel that money is still finding its way into the Philippine market from abroad.  The Asian and European markets are all easing from their bounce yesterday.  It might be that the initial spurt arising from the more flexible reminbi could be running into trouble.  Personally, I like the skepticism.  It tells me that many are underestimating the stronger weight of reminbi in the market.  Many western investment portfolios are probably under allocated in East Asian markets.  Unfortunately, much of their European portfolios could be underwater and funds are unable to rotate out of old positions.  The irony in the local market is that players are always waiting for the foreigners to make the first move.  People have such short memories; if you look back to last year’s rally, it was fueled first and foremost by local funds.

I maintain the view that what would take us to the next higher level will be the locals with greater participation of institutional funds.  The westerners are just too zapped out with one financial crisis after another.  In the meantime, the money that has come home to the Philippines is still waiting to be put to work.

I would approach the market with some caution by continuing to avoid speculative plays or stocks that are being jockeyed.  There will be special situations or recovery plays, but one has to be very careful in picking them out.  It could be a day to buy on weakness as stocks like DGTL, DMC, AP, JGS, URC and MBT are pulling back a touch.  There had been some interest in BPC as the stock starts to recover.  I think BPC, EDC, FGEN and MPI are similarly resting at the lows of their trading ranges.  If I am correct and today’s weakness is a simple consolidation, then we could be up for good times ahead.  I guess, you just have to trade the ranges considering that this sector – the power sector – is firmly in its growth path.

June 23, 2010 Posted by | Financial markets in Asia | 25 Comments