Early in 2011
10:52 pm Sunday 16 January 2011
After the roller coaster ride in the market in the first two weeks of 2011, it would be good to sit back and framework a market outlook for the rest of the year. The problem, however, with a very look perspective is that it does not become very helpful in our day-to-day trading activities. I will try to share my longer term view and describe how I think share prices in general will work its way out in the coming weeks. Forecasts and outlook are like are like navigation tools and a map though. Things look different when you get to the different points. The map tells you where you’re going, but it is up to you to make adjustments along the way.
Fundamentally, the things that are going for the market are:
1) sustained economic growth which are underpinned by:
- recovery in the industrial and export sectors,
- job growth in the BPO and services sector, and
- growth in consumer spending fueled in large part by OFW remittances.
2) Low interest rates which are likely to be stable early in 2011.
3) A high level of business confidence in anticipation of infrastructure programs to be carried out by government.
4) The business cycle which has bottomed out around 12 months ago.
I think all of these will contribute to some moderate growth in companies earnings among those listed in the PSE. Undoubtedly, some companies will be benefited more strongly by the business environment particularly if real investments are going in their direction. A case in point is infrastructure which will be attracting a big chunk of foreign direct investments as well as moves from local conglomerates.
Now, that’s the long view. The near-term will be strongly affected by portfolio flows borne out of the stock selection that fund managers will be making. Here are some educated guesses.
I suspect the ones that will be in the buy list for the coming weeks would be MPI, AP, AEV, DMC, EDC and SCC. These stocks saw healthy consolidation to a point that it made people nervous. I have a hunch that many that have taken profits will be comfortable reinstating their portfolios in these stocks. I think the banking stocks should be viewed with critical perspective considering that lending spreads may be compromised a bit by low interest rates. I imagine that the banks with either a well diversified business mix or those who have a good record of profitability should be the ones leading the way in the next few weeks. I would say for value the choices will be MBT, SECB and UBP. For property, I imagine that VLL has the most to run, but LND due to the recent AGI announcement on a joint venture into the Boracay property opens up a whole new ball game for LND as they use existing property for leisure and gaming prospects.
For mining, my bets are still on NIKL and ORE. ORE may be a bit of a speculative game, but my sources tell me that at least 86 metric tons has been stockpiled and ready for shipping. If you will dabble with ORE, just do not forget that this company still has to establish a track record. That is the big RISK.
I will probably come up with my list of fundamentally sound stocks which I will choose to follow for the year. In the meantime, I sense that the January effect is now upon us. A lot of the re-balancing by foreign portfolios have been done. If there is going to be any accumulation to be done prior to 4Q 2010 earnings results disclosures, it will be in the coming days. It would be better to be long rather have nothing in your portfolios.
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