Gus Cosio says so

Ideas on the Philippine Stock Market

Screamin’ dreamin’

3:00 pm  Sunday  4 July 2010

Happy Independence Day to all you American or Fil-Am readers out there

What is bringing the Philippine market down?  Is our economy in bad shape? Are earnings of listed companies bound to decline?  Are stock prices at home more expensive than their counterparts abroad?

Last Friday, U.S. private payrolls rose a modest 83,000 in June while overall employment fell for the first time this year as thousands of temporary census jobs ended. The unemployment rate fell to 9.5 percent, the lowest level since July 2009, from 9.7 percent in May, but only because a flood of jobless workers gave up their employment search.  Weak consumer spending, housing and factory activity have heightened fears that the economy could slip back into a recession.

In Europe, the sovereign debt suspicion continues to fuel fears of global recession.  What is the average Philippine investor to do then?

Personally, I think the sentiment pendulum has already swung the other way.  Most of the smart investors have already discounted the worst for the U.S. and Europe.  You and I agree that there are no free rides.  Risk is main course for the stock trading meal.  Of course, I would not want to ignore current investor sentiment because it is the extreme cautiousness of investors that will make valuations cheaper for the stocks that we follow.  As it is, TEL is already very cheap; remember 1Q2010 profit was already Php 11 billion.  This stock is trading 11X trailing PE with dividend yield of 9% at current prices.  AP is trading 10.7X PE while its parent – AEV – is even cheaper at 8.2X.  DMC trades at 8.4X PE with dividend yield of 3% and an ROE of 25%.  BPI while looking a little expensive at 17.7X PE is yielding 6% which is better than what you would get at its own deposit counters.  FPH is ridiculously cheap that I will not even mention the PE.

Prospectively, you have companies like MER (27X), MPI (13X), SECB (8X), SCC (7X), SMDC (15X), URC (7.8X), RLC (11X), JGS (9.1X), SMPH (19X), BDO (16X) and MBT (16X), all of which are not remarkably expensive.  On the whole, this market is decently priced, and the economic backdrop is as neither as dismal as that of the U.S. nor Europe.  My take is after a little more erosion of prices, investors will start to take notice.

As a pragmatic stock investor, I would not swim against the tide either in the near term;  but I would not ignore the decoupling from the major markets that local stock prices had seen in 2Q2010.  I continue to think that the local market is growing in terms of local player participation.  On top of that, I think more and more overseas investors will recognize the decoupled move of the last quarter and recognize this market for its diversification proposition.  That is neither a pure guess nor an expression of hope.  Portfolio managers have always been on the look out for diversification opportunities; and when they look at their Bloomberg and Reuters analytics screens, the PSEi will come out screaming back at them.


July 4, 2010 - Posted by | Financial markets in Asia


  1. Happy weekend Gus,

    I decided to unload most of my portfolio last week.. What is left is only 20% of my funds invested in AEV, URC, DMC, AGI and EDC.. I just find it prudent to keep enough cash should the Phisix tank within the next few days considering the pervasive bearishness in the global markets brought about by a barrage of negative economic data.

    I am just waiting for MBT and SCC to drop some more before jumping back in, also “hoping” that our local market will be able to withstand the selling pressures next week and reassert its resilient self…

    The week ahead will be very interesting indeed…

    Comment by mike | July 4, 2010 | Reply

    • It should be very interesting indeed.

      Comment by Gus Cosio | July 5, 2010 | Reply

  2. Happy to see my porfolio performed strongly well.. All went up except AGI which remained unchanged…Phisix has shown once again reassert its resiliency…

    Comment by mike | July 5, 2010 | Reply

  3. Hi sir,

    been reading your blog for a while now, it has been quite helpful.

    I’ve also just finished Benjamin Graham’s “Intelligent Investor.” And so far, his value investing approach appears to be the most prudent.

    1. I’m still learning, so would recommend other reading materials I can sift through?

    Thanks sir!

    Comment by van | July 5, 2010 | Reply

    • Try Winning on WaLL Street by Martin Zweig….Study Elliot Wave Theory and Momentum Investing

      Comment by nadia | July 5, 2010 | Reply

  4. Sir Gus,

    Any thoughts on the weakening of regional currencies over the past week, more specifically of the peso against the dollar? As you’ve mentioned in your previous posts, the Philippines has a very strong (even getting stronger)external account: remittances remain robust, exports have improved markedly since late last year, and net foreign flows have been mostly positive.

    Are we missing something here? Is the currency market pricing in something that I’m not seeing? Something political perhaps? Or is the BSP just allowing the peso to depreciate to make exports more competitive?

    Would really appreciate your thoughts on this, and how such movements in the regional currency market would affect flows to equities.

    Thanks, Sir!


    Comment by genkumag | July 5, 2010 | Reply

    • Hi Jet,

      The forex rate is dictated by supply and demand on particulars days. Range movements are to be expected sometimes. For example foreign fund manager C liquidated holdings in stock and bought $, such may affect demand for that day.


      Comment by alex | July 5, 2010 | Reply

    • Jet,
      if you look back a few months, you’ll notice that the US$ had gone down vs. the Php to below 44. Forex does not move in a straight line. Capital flows are the strongest determinants of FX rates. The Php is traded both on-shore and off-shore. Those trading off-shore are buying US$ for various reasons. It may be against Php or a basket of currencies. At any rate, the Php is too expensive with the US$ at below 44 anyway. I think it serves the Philippines better if it were around 47.

      Comment by Gus Cosio | July 5, 2010 | Reply

    • Thanks to both your comments, Sirs.

      Comment by genkumag | July 6, 2010 | Reply

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