Gus Cosio says so

Ideas on the Philippine Stock Market

A third quarter challenge

7:30 pm  Thursday  1 July 2010   Philippine Stock Exchange Index  3315.26 (-1.703%)

After being away for a day, our market woke up to a total decline in Wall Street of 369 points or 3.63%.  That was after the DJIA had fallen12.9% from its peak in April and 6.3% from the beginning of the year.  We could not help but feel bearish in spite of yesterday’s presidential inauguration euphoria.

A few things are bothering the market, notably the global growth prospects.  For one, China’s manufacturing growth slowed as the Purchasing Managers’ Index fell to a lower-than-expected 52.1 in June from 53.9 in May.  A reading of above 50 signals expansion.  Bad news in Europe came in the form of Moody’s Investors Service saying that it may cut Spain’s AAA credit rating.  If you ask me, seeing that the credit spread of Spain widening to around 180 basis points over German Bunds  , investors have priced the downgrade into the market way ahead of the rating agencies.

Locally, even if the market had gone down, I don’t feel too worried yet as my favorite stocks do not look so bad.   For instance, DMC looks to be well supported at 17, even closing at 17.25.  If you were waiting to buy AP today below 18, it appeared to be a tall order as  strong demand came out at 18, and it closed at 18.25.  Even AEV at 19.50 is looking formidable with a close at 20.

I was even hoping for EDC to break 4.50 so I can get it cheaper, but hope is all I’m seeing at this point as demand crawled out of the woodwork at 4.55.  AGI could have  been trending toward 5, but willing buyers had stepped up at 5.30.  MER may have moved up over the past few weeks and is holding its own at 184.  If this stock moves down some more, I would not be surprised if we see bargain hunters taking a lot of positions in.

Traders have been trying to beat TEL  down again, but  2370 looks to be holding.   For all you nervous holders of DGTL, if today’s extremely weak opening cannot put DGTL into the tank, then the intrinsic demand for this stock may just be a lot deeper than we think.  I suspect special situation buyers will continue to take this stock in while waiting to confirm its recovery.  Its parent, JGS at 16 looks to be attracting good buyers.  Among financials, MBT buyers appear to have dug the trench at 60 while PNB supporters seem unfazed at 29.50.

Am I sounding bullish; not really, let’s say that I’m just observant.  I do not see a rally yet in the horizon, but negative sentiment does not seem to have taken hold in the domestic market yet.  Personally, I think the third quarter, which we are just entering, is going to be a bigger challenge than the quarter just past.  Money flows are normally tighter in the third quarter and investors really become very edgy.  But then again, if domestic fundamentals remain strong, this should just be a hiccup in our march to higher levels.

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

27 Comments »

  1. Sir Gus,

    To start things off, do you think our 3800 point target for out PSEi for this year is still intact despite what some Wall Street analysts say that the bear market has officially started?

    Comment by Norlan | July 1, 2010 | Reply

    • 3600 is possible 3800 is heavy…But the biggest question is what sector will bring us to 3600 or 3800…

      Comment by marlon | July 2, 2010 | Reply

      • Marlon,
        3600 will be easy by year end. 3800 is a little more difficult.

        Comment by Gus Cosio | July 2, 2010

    • Norlan,
      The bear market has officially started in the U.S. (probably), but some markets may be poised to outperform. Money is searching for a good home all over the world. Certainly, Philippine private banking money abroad will start looking for a safe haven or familiar climes.

      Comment by Gus Cosio | July 2, 2010 | Reply

    • Norlan,
      The bear market is not like a public holiday that can be declared. Their guess is as good as ours. Remember, in March 2009, these analysts in Wall Street were all calling for a doomsday scenario. I was in Hongkong at about the same time telling people at the Asian Pension summit that Philippine stocks were very cheap.

      Comment by Gus Cosio | July 2, 2010 | Reply

  2. US treasury dept. sold $10.5 billion worth of citi shares..Why are they selling to soon sir Gus?

    Comment by xavi | July 1, 2010 | Reply

    • simple, xavi,
      for profit.

      Comment by Gus Cosio | July 2, 2010 | Reply

  3. Hey there sir gus,

    I read an article in Bloomberg about how Allen Greenspan defined what’s happening as a “typical pause” and that instead of the economy shaping the stock markets; it is the other way around. Are you in agreement with this point of view of the markets overseas?

    Norman

    Comment by Norman Go | July 1, 2010 | Reply

    • Norman,
      Greenspan is sharing his thoughts which he takes with a historical and academic perspective. He is a very insightful person with very deep experience in the markets. Markets normally move ahead of the economy. From a historical perspective, markets have predicted changes in the direction of the economy with a 90% batting average. I think what the U.S. market has been telling us since the end of April this year is that it does not want prices to go ahead of earnings. I told my colleagues yesterday that I though the DJIA may threaten 9400 before recovering. I think by the 3rd week of July, earnings among S&P 500 companies will reveal whether stock prices have indeed gone ahead of earnings. In the Philippines, among the headline stocks, prices are still cheap versus trailing earnings as of the 1st quarter.

      Comment by Gus Cosio | July 2, 2010 | Reply

  4. Thanks Sir Gus Tel is going Up…Godbless…..

    Comment by mitch | July 2, 2010 | Reply

    • Mitch,
      a good investor recognizes value.

      Comment by Gus Cosio | July 4, 2010 | Reply

  5. Hi Gus,

    In my previous comment, I mentioned that the only stocks I’m holding are DMC(30%) and BPC(15%) and sitting on 55% cash. Would you advise to maybe trim my DMC further since a rebound might take a while or just average down on further dips?

    You also mentioned that money flows get thinner in the third quarter and I’m completely with you on this, 3Q09 was just an exception to the rule.

    As I write this, I’m starting to see some of my favourite stocks touch or inch closer to my preferred buying price. In my comment to your Ignoring Sentiment blog post, I mentioned that the PSE’s apparent decoupling is causing me discomfort in adding more positions. Despite my peers’ implied advice to chase prices, I stuck to my trading strategy and gut feel since my market experience and wisdom if you will, had taught me better. And now, the market has proven that I made the right decision.

    As you have always mentioned, there’s no point in buying stocks if it will make us lose sleep and to trade at our own comfort levels. I did and once again, PATIENCE has rewarded me. I hope newbies won’t have to learn it the hard way.

    Comment by richard | July 2, 2010 | Reply

  6. What is ETF sir Gus? Why many american investor buying it since last month…

    Comment by Wilson | July 2, 2010 | Reply

    • Wilson,
      ETF are stock or index baskets that trade like real stocks. The structures are different depending on the kind of ETF it is. There are a number of books out there on ETFs.

      Comment by Gus Cosio | July 4, 2010 | Reply

  7. sir Gus,

    what are your thoughts on AT?

    also on other related stocks APO, OV, VUL, and UPM?

    Are they any good? All of them are stocks of Mr. Alfredro Ramos. What are your thoughts on him as owner/manager of these stocks?

    Comment by jovy | July 2, 2010 | Reply

    • Jovy,
      AT is an operating mine, so what you have t follow is the production reports to determine its current value. The rest are not in my radar screen.

      Comment by Gus Cosio | July 3, 2010 | Reply

  8. Hi sir Gus, Which is better Fgen or LPZ(Benpres) ….I bought Tel last week…

    Comment by ragingbull | July 3, 2010 | Reply

    • I think LPZ is attractive..i will also buy LPZ this week..LPZ owns FPH(Fph owns a solar power company called first philec solar corp. a very promising growth company)

      Comment by anton | July 4, 2010 | Reply

      • LPZ is a play on conglomerates. It also owns ABS plus Bayantel which is unlisted.

        Comment by Gus Cosio | July 4, 2010

    • Ragingbull,
      For positions you wish to hold until year end, I think FGEN is better. LPZ or Benpres to my mind is a recovery play. It may rise sharply in the short run, but FGEN is a purer play on power which to my mind is the main market theme going forward.

      Comment by Gus Cosio | July 4, 2010 | Reply

      • Thanks Sir Gus….I’ll Buy Fgen and EDC …

        Comment by ragingbull | July 4, 2010

    • There seems to be assets that are not fully utilized with in BPC, say Bayantel. The good thing is the decrease in itss interest expense and loan balances.

      Negative side, seems no clear growth driver for it. Fgen is under FPH and FPH is under BPC.(several layers) Also I suggest please take a look at management payments and compare it with other listed companies that are making money.BPC have been in the red and under restructuring for the past 3 years or so.

      Thanks

      Comment by alex | July 4, 2010 | Reply

      • Alex,
        BPC has been in the red for longer than I can remember because of losses in Bayantel and Maynilad. It is only this year thatthings are looking better withe the sale of Meralco by FPH which allowed FPH to bring up cash to BPC for settlement of some debts.

        Comment by Gus Cosio | July 4, 2010

  9. I think many investor will take position on select blue chip stock this week…(EDC,MWC,FGen,LPZ,TEL,Glo and MBT)….Rally may Happen Last week of july or first week of August..

    Comment by al | July 4, 2010 | Reply

    • Al,
      Do not make the mistake of trading based on crystal ball guess work. Trade based on value and market conditions. Value you can measure. Market condition, you need to follow developments to get the pulse of it.

      Comment by Gus Cosio | July 4, 2010 | Reply

  10. @ AL EDc, Tel Or Lpz and also FGEn…

    Comment by tommyboy | July 4, 2010 | Reply

    • I read you are seeing value for dgtl, what is your 2-3 month target for this price?……hooray for pnb……….

      Comment by MIKE | July 21, 2010 | Reply


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