Gus Cosio says so

Ideas on the Philippine Stock Market

Time to take stock

First of all, i would like to tell all of you that for reasons unknown to me, I could not post on this site.  I could only access the comment box where most of you post your comments.  Anyway, I am happy that I can share things again today.

First of all, there are very few players in the local market who are not as pleased as I am that the PSEi has broken its all time high.  We are now trading in uncharted territory.  That is not to say that I am no longer bullish in the local market.  Far from it.

I continue to stress that investors should prepare to increase equity exposure even more, now that we are breaking new ground.  It has become to be a new ball game for the PSE which I feel has graduated into a bigger league.  Let us look at it from the top going down.

What are the fundamentals, macroeconomics-wise?

1. We have a much bigger economy now than what we had in 2007 when we posted the previous high.  Remember that the Philippine economy did not go into recession.  It only slowed down and that is the reason why locally listed companies did not have to face any capital erosion.  In fact, cash balances of Philippine companies remain high.

2. We have more money on hand today than in 2007.  If you remember the SDA level with the BSP in 2007, it was roughly around Php 500 billion.  Today, it is pushing Php 1 trillion.  People have been extremely cautious with their cash and only a few have managed to put it to real work – as in the stock market.

3. Companies have better bottom lines today than 2007.  We have been seeing corporate earnings rise by 10 to 15 percent.  Power and utilities companies have been experiencing even stronger growth.  So have some consumer shares.

4. We have a better political and business climate than we had in 2007.  Remember that they were still looking to impeach GMA that year except many proponents already gave up.  They, however, went for investigations such as the NBN deal and the fertilizer scam among others.  Today, in spite of the set-back brought about by the August 23 hostage crisis, there is still a lot of political capital in the hands of Noynoy Aquino.  There is a lot of business enthusiasm from both domestic and foreign sources.

5. More investors from outside the country are looking to allocate investments to Philippine stocks today than there were in 2007.  If you look at the TIP (Thailand, Indonesia, Philippines) theme, the almost identical performance of the three markets gives us an early indication of how global capital is moving.

6.  More locals are getting involved today than in 2007.  Due to heavy losses taken by wealthy investors during the sub-prime crisis, Filipinos have realized that investing abroad is not a sure-fire strategy anymore because one has very little control of investment decisions.  In contrast, if you play with your money domestically, it is easy to cut losses before they run your portfolio to the ground like the foreign fund managers did to them in 2008.

7. The outlook going forward is better today than it was in 2007.  We have had 2 quarters of growth and while the world is wary of a second dip in the global economy, this in 2007, the crash was imminent.  This was because there were asset bubbles everywhere – US, Europe, China, hard commodities, soft commodities.  even crude oil was headed for ear-piercing levels in late 2007 going into 2008 when it peaked at $150 a barrel.  Today, asset prices are low but are already at rock bottom in as far as property prices are concerned in the developed world.  Even property prices in China have eased a bit.  Oil is having a hard time breaking above $80.

What I would like to say is that things are different today tan what it was in 2007.  At that time TEL was above 3000 and GLO was above 1100.  Today, TEL is only 2400 in spite of a core bottom line 15% higher than it was in 2007.  Even AC was above 500 then and ALI over 20.  What has happened is that the market has diversified in stock allocation because there is more to choose from today that 3 years ago.

Now tell me, is that not good for stocks as a whole.

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September 12, 2010 - Posted by | Financial markets in Asia

32 Comments »

  1. Nice to read your post agian sir Gus,everyone seems at a lost now that we are in an uncharttered territory,if indeed its time to take a stock now what best advice could you give especially most of the stocks now are near their fair value.do we have to wait for a correction or just follow the trend.and at these stage what stocks are best for hold at least till end of the year and if one decide to enter the market at these stage what stocks do you recommend.Thank you very much for your valuable insights.More power and God Bless.

    Comment by kelly | September 12, 2010 | Reply

  2. hi Sir Gus, Im not expecting a correction this month i think stock will continue to rally but i sold most of my position last week with a good gain to raise some cash…right now im 80% cash…planning to buy DGTl…

    Comment by jenny | September 12, 2010 | Reply

  3. nice to hear that sir Gus, iam afraid the bubble will burst soon ‘coz the stock i’ve been holding for 8 months now is not yet peaking up. hope this will climb up before major correction. God bless!

    Comment by xcrubat | September 12, 2010 | Reply

    • I do not think that we have a bubble. Stocks are no over valued compared to cash on hand in the economy.

      Comment by Gus Cosio | September 15, 2010 | Reply

  4. Thank you for the post Mr. Cosio. Your insights about the Philippine Stock Market is very relevant to stock market investors like us.

    I would like to ask a question about the Philippine Property Sector. Do you think it will continue to perform superbly like this year? What do you think about the concept of oversupply in the property industry specifically the residential sector where SMDC, RLC, ALI, MEG, FLI, even DMCI Homes, has been building homes left and right?

    Comment by BJ Evangelista | September 12, 2010 | Reply

    • Hello BJ,
      Very good question… this also popped in my head..that now property shares have been increasing significantly.
      Lets see the thoughts of Sir Gus. 🙂

      Comment by Foreign Investor | September 13, 2010 | Reply

    • property sector imho is a beneficiary of the very low interest rates provided by the banking sector. For example, The ave interest for housing loans is 9.5-10.5%/annum. Thats very low. Consider that there was a time when 18% annual rate was the norm (Our old house was mortgaged under such a deal).

      a lot of people(Including me) is taking advantage of the low interest rates I think.

      Comment by jasper | September 14, 2010 | Reply

      • Thank you for your response Mr. Foreign Investor. I am just worried that people would not be able to pay their mortgage once interest rates starts to go up.

        I made an additional question about interest rates and the banking sector in Mr. Cosio’s reply to my post. Let us see what is his take on this.

        Comment by BJ Evangelista | September 15, 2010

    • BJ,
      I think that there are a lot of construction going on, but that does not mean that there is an oversupply. What it means though is that rents in the NCR will stabilize. Development margins are very comfortable and buyers are not very hard to find.

      Comment by Gus Cosio | September 15, 2010 | Reply

      • Thank you for your response Mr. Cosio.

        I am just worried that people would not be able to pay their mortgage once interest rates starts to go up.

        I have observed that big developers like Robinsons Land and SMDC integrated payment terms that makes the buyer pay for the 20-35% down payment for 3-4 years at no interest, which is quite easy to pay if one has a stable source of income.

        But once the the monthly payment for the downpayment is completed, the 65-80% payment is due. What if, after 3 to 4 years from now, interest rates are at all time highs? What do you think will happen to our residential property sector and the respective banks that helped finance the construction of the buildings?

        Comment by BJ Evangelista | September 15, 2010

      • BJ,
        I cannot predict what interest rates will be 3 or 4 years from now. The government securities yield curve is predicting that they would be 2% to 3% higher. When those years come, buyers would have lower outstanding balance on their housing loan mortgages. For as long as the fixed monthly payments remain the same, these units for sale will still be affordable. what is important for developers is their margins on today’s sales. For banks, it is the spreads that they can lock in today that matters.

        Comment by Gus Cosio | September 15, 2010

  5. I just would like to add that with placement rates remaining low, money looking for better yields will continue to increasing flow to the equities market. Given the positive factors cited by Mr. Gus, I too am bullish …but will always keep in mind that markets do not move in a given direction in a straight line. Extraordinarily long upward surges will always find reason/s to correct. It is the daily challenge of keeping a good batting average in accurately reading or anticipating events that would push the market up or pull prices down that makes investing not only rewarding but also exciting.

    Comment by rj | September 12, 2010 | Reply

  6. Unlike tsupiteros, who normally trades based on momentum, fund managers do their investment based on fundamentals and future earnings of the company (although some fund managers uses technical indicator to determine their entry). Certainly, Philippines is in the radar of foreign fund managers. As mentioned by sir Gus, we have the right elements for bullish market. I agree that most of the stocks in PSE are at their FV level, but if we factor the future earnings, that is another story….certainly fund managers whether foreign or local, have different ways of forecasting the future earnings….and that would propel PSE to new level. As long as politicians wont spooked foreign investors….we are for a good run.

    Comment by Raymond | September 12, 2010 | Reply

  7. Hello Gus,

    Thanks for all your insights, as a newbie, would like to ask for your help. In your practice on what % of profit do you consider selling or reinvesting your stocks?
    Because I’ve been earning but don’t know if I have to reinvest it, get it or just leave it, I only have 5 stocks that I’m happy with – MPI, DGTL, PX, AP and SMDC. Hope for your opinion.

    Comment by James | September 12, 2010 | Reply

    • James,
      You have a good portfolio. Just make sure you manage your cash by taking some profits at the appropriate time.

      Comment by Gus Cosio | September 15, 2010 | Reply

  8. Great analysis! Thanks Tito Gus

    Comment by Nicole | September 13, 2010 | Reply

  9. I think DGTL will zoom to 1.8++ in the coming weeks…….

    Comment by jenny | September 13, 2010 | Reply

  10. anyone know what’s the max selling price for PNB? thanks!

    Comment by kitkat | September 13, 2010 | Reply

  11. I’m already speculating of taking profits from RLC and MBT. Which stock else should I use my free cash should ever?

    Comment by deuts | September 13, 2010 | Reply

    • Try ORE and SLI, check their movements and you will see things technically speaking.. But I believe Sir Gus, has alot to say about their fundamentals…

      Comment by Foreign Investor | September 13, 2010 | Reply

      • ^ Are you trying to push ORE and SLI up?

        Comment by Average Joe | September 14, 2010

      • Me… im trying to but im just a small time investor.. Markets are moved by big players.. But this is a small cap stock so might be helpful but lets see.. Ill only think of selling ORE at 3.25 or just go on with it till momentum goes. For SLI im confident till 2.25

        Comment by Foreign Investor | September 14, 2010

      • haha, silly pump n dump scheme

        Comment by Rudy | September 14, 2010

      • I believe you are not a small investor, but one of the market movers of ORE and SLI. As your name states: “foreign investor”. If it sounds “foreign”, then it must be big.

        Please refrain from polluting the minds of newbie traders on this site. Go back to your own site. Better yet, lay down the fundamentals of ORE here on this site to convince us of its worthiness.

        Comment by Average Joe | September 14, 2010

      • Hello Average Joe,
        I am truly a small investor. I might be a foreigner, but just a single individual.

        I am not polluting the minds of newbie traders, All I have to say about ORE’s fundamentals currently their is a commodities are moving up and shippment of ORE is about to be shipped, Their balance statements/income statements are looking more valuable then before. With SLI it has been having alot of new projects especially in the rural areas. Which is a need of the market right now and also technically speaking they are looking strong. With regards to these shares you can see its movements and price by the end of the year. I am not also trying to pollute any ones mind and for everyone’s sake what will I gain by doing this, I am here to share not to pollute.

        Have a great day Average Joe, hopefully you understand what I mean to say. 🙂

        Comment by Foreign Investor | September 15, 2010

  12. future future future…

    i hear a lot about the future.. future earnings.. growth potential… future expansion..

    what about now? is it overvalued or undervalued based on what we have now..

    but i guess thats just how the market behaves, most invest a for the future..

    but if the market is getting way ahead of itself, i bet theres going to be a correction soon…

    Comment by cliffhanger | September 13, 2010 | Reply

  13. Hi Sir Gus,

    There is a write-up in COL about some of the price of stocks before we are affected by the US recession. I think this happened midway in 2007. Would you believe that stocks will go back in thei 2007 prices. For example, MEG price in 2007 is 4.50 and for FGEN it is 29.95. I just don’t know if there are SRO, splits etc. which cause dilution from 2007 up to present.

    Prices are quite high nowadays, I still have 50%cash but little bit hesitant to buy because I am protecting my gains. What would be the best strategy in this time of bull-run.

    Comment by Cliff | September 13, 2010 | Reply

  14. The PSEi might be high, but not unless someone’s portfolio is composed of stocks taken solely from this particular index, then it might have minimal impact on said portfolio.

    And also maybe some of the smaller issues might still be undervalued. So might be worth investigating some of them.

    Comment by jasper | September 13, 2010 | Reply

  15. Hi Sir, guys,

    Whats the FV of FGEN, JGS and EDC? I’m planning to shift my funds from DMC and PNB hopefully within the week. Is this advisable?

    Thanks!

    Comment by kann | September 14, 2010 | Reply

  16. Next month CEBU PACIFIC IPO….They must BUy Up DGTL if they want people to invest in CEBu pacific……..4-5 weeks to go…..

    Comment by jenny | September 14, 2010 | Reply

  17. As always, thanks for your insights Sir Gus.

    Now is the time for the Philippine stock market to rise above the rest of the Asian markets!

    Comment by AiDz | September 15, 2010 | Reply

  18. Sir,
    Im 75% invested. Took some profits on PNB, DMC. At present I have MPI (25%), AP (25%), DGTL (12%) and PX (12%). Im looking at going back to DMC, maybe add more positions in MPI, look at EDC as well or just leave myself 75% invested. When do you normally go for 100%. Your thoughts would be much appreciated.

    Comment by mark anthony | September 15, 2010 | Reply


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