It is still worth the risk

In my last article, I wrote that investors should be looking to raise cash because he U.S. economy was looking to fall into its second dip. There was also this negative sentiment around the country on account of the hostage fiasco that transpired on the 24th of August. For an investor, raising cash does not really mean that he is turning negative on the market. I, for one, have been a strong advocate of greater equity allocation in investors’ portfolio simply because the alternatives were not at all enticing. When asked by an investor early this week of how I was moving my portfolio, I said that I was selling some stocks and buying others because I did not want to be 100% allocated in equities. I want to have close to 20% cash on hand; so if I took on a new position, I would re-balance my portfolio by selling some slow or under performers as well as top-slicing for profits in stocks that have done very well.

It has been very difficult to make short-term judgments in my portfolio because many local investors’ sentiments become jaded by what is going on in Wall Street. For most of August, the Dow was declining, yet the PSEi was steadily rising. Foreign buying into our market was intermittent slipping from net buyers to net sellers from week to week. Nevertheless, there were always traces of foreign brokers ready to pounce on any weakness in prices. That was in fact what happened when the hostage fiasco at the Quirino Grand took place. The market drifted lower only to be met by aggressive buying among foreign and local institutions. If there is anything that we can glean from price actions of the last few days, it is that pent up demand for Philippine stocks is starting to surface quite strongly. This demand is most evident in the growth of value turnover over the past 5 weeks. In the first week of August, value turn-over was averaging Php 3.2 billion a day. This steadily rose to Php 3.7 billion a day average in the second week, then to Php 4.2 billion. In the week immediately past, it was already averaging Php 5 billion a day.

Undoubtedly, the amount of money flowing into the market is growing. Ironically, this comes at a time when global investors feel quite uneasy about the developed markets. While there has been a recovery in Wall Street this past week, there appears to be no definite conviction that the economy will do better. There appears to be no conviction that stocks in the U.S. will continue to rally, after all the year-to-date performance of both the Dow and the S&P 500 have been flat to negative.

Where does this leave local stock prices? Well, I think they will continue to move higher. Of course, people cannot ignore the individual stock selection. People have been asking about the banks due to the recent publicity on Globe Asiatique, a property company that has applied for listing in the PSE. The scuttlebutt is that there are some bad loans coming out of the misfortune of this property company. To be safe, I would avoid RCB and PNB for the time being. The news I am getting is that PNB has a manageable exposure while RCB’s potential problem is around 4 times that of PNB’s. I think people should watch these stocks closely to see what happens. Personally, I believe PNB will weather this one quite easily and with the forthcoming merger with Allied, I see very little erosion in the ultimate merged value of PNB.

As to stocks that I think will continue to perform, at the top of my list would still be AP and DMC. I missed the strength in AC and BPI. These stocks, together with MBT are very much preferred by foreign funds. I think that all the blue chip stocks will be doing well over the remaining months of 2010. I think it is worth mentioning that TEL will always be part of any foreign portfolio seeking an exposure in the Philippines. Actually, my strategy with TEL is to have an equal weight of TEL and DGTL in my portfolio. TEL has the steady and huge core earnings which is expected to go to Php 45 billion in 2011. DGTL, I expect core earnings to at least double in 2011.

For property stocks, I quite agree with those who have been punting on FLI. the stock was a favorite until Typhoon Ondoy struck. The stock, I feel, has undergone a re-evaluation and people are now more confident that things are back on track. I am also taking a look at the fundamentals of SLI because of the recent price movements in the stock as well as volume spikes. SLI is a good real estate developer that have had a number of successes. There might be money making opportunities here.

There have also been some interest in mining share led by a recent rise in PX and a stronger move on AT. I think that that there may be trading opportunities in both stocks since hard commodities have started to pick up again in the world market and both these mines are producing. incidentally, I hear that ORE is already producing and should be making shipments soon.

Finally, I think the exchange of ideas going on in the comment section of this blog is very constructive. I encourage a lively exchange of ideas among readers. My only request is that we keep the standard of the comments on a professional level, meaning, let us share insights rather than just hype. Let us also use language worthy of respect for our readers.