Gus Cosio says so

Ideas on the Philippine Stock Market

Protecting profits

9:00 am  Tuesday 18 January 2011

Asian stocks fell yesterday which was probably why the PSEi gave back 10 points from its intra-day high of 4156.  The region was seeing five consecutive weeks of gains, amid speculation that governments throughout the region will need to do more to tame inflation.  The MSCI Asia-Pacific Index lost 0.6 percent. Recall that MSCI Asia climbed to a two-and-a-half year high last week after Germany indicated it would take necessary steps to stem Europe’s sovereign debt crisis.   The MSCI Asia-Pacific Index rose 14.3 percent last year,compared with gains of 12.8 percent by the S&P 500 and 8.6percent by the Stoxx Europe 600 Index. The index was valued at 14.2 times estimated earnings on average at the last close, compared with 13.6 times for the S&P500 and 11.2 times for the Stoxx 600.  It is no wonder that fund managers are a bit edgy in the region since many would like to protect their gains.

Inflation apparently is the sword that hangs over most markets in Asia.  The growing sentiment in the region is that pressure on interest rates will constrain economic performance of some countries in the region.  In China, the  region’s big brother, rising inflation expectations may pressure the central bank to raise interest rates by 25 basis points in February, possibly followed by another increase in the second quarter, according to a Bloomberg report.  The Hang Seng Index dropped 0.5 percent; the Nikkei 225 Stock Average was flat; the Kospi retreated 0.4 percent.

Regional concerns appear to be the basis of foreign funds moves in the market.  Fundamentals may take a back seat for a while, so in spite of strong developments in the Philippines, we may see subdued constructiveness among local investors.  Yesterday, OFW remittances  rose in November by 10.5 percent from a year earlier to$1.61 billion.  That follows a 9.3 percent gain in October and an 8.2percent to $17.1 billion in the 11 months through November.   Remittances now account for 11 percent of GDP which makes a full year GDP growth of as much as 7 percent in 2010 to be feasible.  The full-year GDP data will be reported on Jan. 31.

Given this scenario, I think that we will eventually see price gains up to the middle of February when most company earnings report comes.  I do not expect strong surges though.  I would accumulate stocks which are relatively well shielded from inflation such as the utilities and power.  They are allowed to add fuel surcharges when fuel prices rise.  Incidentally, airlines are also able to add fuel surcharges to fares.

Inflationary expectations may dampen demand for housing and property, but seeing that mortgage rates have not really dropped by any significance, maybe it will not matter that much.  Companies that may be squeezed are the consumer companies like URC, RFM and PIP which may feel the brunt of rising agricultural commodity prices.

All I can say today is that I cannot be too bullish, but I sense that the up trend is still intact.  Volatility may rule for the time being and foreign funds may either be absent or might use strong days to flee.  It is of utmost importance that we stick to the stocks with the very strong fundamentals so we can weather any potential storms.  needless to say, there will be special situations such as CYBR, LR, APC and the like.  Just remember that they are special situations where money management is extremely crucial, i.e. protect your profits always when touching these stocks.

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January 18, 2011 - Posted by | Financial markets in Asia

26 Comments »

  1. thanks for the post sir gus!

    is there high correlation po among asian stocks exchanges? i.e., when the neighbours go down, pse also goes down?

    thanks po and God bless!

    Comment by ricky | January 18, 2011 | Reply

    • Ricky,
      Correlation varies from period to period so rather than look at the correlation, it is better to look at valuations.

      Comment by Gus Cosio | January 18, 2011 | Reply

      • thanks po, sir Gus!

        Comment by ricky | January 18, 2011

  2. I made a difficult decision today. I just sold my SECB. But this was done to fund an RLC purchase.

    Too bad I got too greedy and didnt manage to sell my DMC when it was at the 36p level 😦

    Comment by jasper | January 18, 2011 | Reply

    • Don’t worry Jasper..DMC will come back to that level on another day…

      Comment by jopard | January 18, 2011 | Reply

      • I am pretty sure Jasper felt bad that he missed the opportunity — from what could have been a good transaction where he could have earned a good amount of money…

        Jasper, that was really a missed opportunity since you could have bought back DMC when it slid…

        But then again who would have thought it coming, right? That only shows what everyone of us know: how unpredictable the stock market is!

        Jopard is right, most probably it is going to reach that level again. And when that time comes, am sure you’ll be better prepared.

        Comment by ricky | January 18, 2011

    • In my case, I totally missed MER when it touched P287 earlier since I was working…
      Too bad because it dropped all the way to 266…

      Lesson learned.

      Comment by ricky | January 18, 2011 | Reply

    • talk about hindsight…

      Comment by 100K_Pinoy_Fund | January 18, 2011 | Reply

    • Actually, I was gonna sell half of my holdings to fund the RLC acquisition. But ended up selling SECB because I couldn’t bear the thought of selling DMC at 34.

      The gokonwei stocks are falling down, but that just means I am given an opportunity to buy some stocks that I previously thought was out of my reach. Although a -10% on JGS is quite hard to swallow.. :ouch: but I now have JGS, RLC, and DGTL.

      I plan on taking advantage of the secondary offerings too. I just think these companies are good investments. Not necessarily means that the stock will rise and make me happy though. I’m just buying because I believe 😆

      Comment by jasper | January 18, 2011 | Reply

  3. Kakatakot naman yun parang 4-5 years from now pa

    Comment by Cammy | January 18, 2011 | Reply

  4. hi sir gus,

    where can i possibly get industry-specific benchmarks for PE multiple, EPS and other ratios. can’t wait for your feb 2 talk again!

    Comment by rey | January 18, 2011 | Reply

    • unsolicited reply to your question:
      you can try
      bloomberg.com or
      reuters.com or
      http://investing.businessweek.com/

      Comment by ricky | January 18, 2011 | Reply

      • thanks ricky, i’m going to start tooling at it now. thanks again

        Comment by rey | January 18, 2011

    • Rey,
      these information are not available for free. Some brokers share information with clients only. Best you could do is surf the PSE website and create an excel worksheet for your own use.

      Comment by Gus Cosio | January 18, 2011 | Reply

  5. Sir Gus, early this morning, I posted Mer a 295 sell. It only reached 287. Too bad I missed the 299.60 last week before it went back to 260+. 😦

    Comment by Shan | January 18, 2011 | Reply

    • shan,

      let’s hope it goes back to the 290 level.
      good luck to us. he he he

      Comment by ricky | January 18, 2011 | Reply

      • Shan,

        You might want to establish a stop loss during crucial times of selling. This will not cloud your decisions. You might want to consider selling your stocks already. Remember “You will never be a loser if you’re selling on profits”. & “Bulls make money, Bears make money but pigs loose money.” =)

        Comment by Jopet Rodriguez | January 18, 2011

  6. sir gus, if inflation happens will these affect the prices of commodities like gold would you expect london gold to go up or down, what about mining stocks what should we look out for…..

    thanks in advance

    Comment by shanu mathani | January 18, 2011 | Reply

    • Shanu,
      Gold normally goes up as inflationar expectations go up. So do industrial metals. In this cycle, I think mining stocks are still on the up-trend.

      Comment by Gus Cosio | January 19, 2011 | Reply

  7. Question (a crash course on economics)

    Inflation surfaces from oversupply of commodities right? An oversupply of commodities could have been caused by low interest bank rates wherein businesses have taken advantage of. Since there’s oversupply, banks now see it fit to raise interest rates to control borrowing.

    Is this a raise for concern among us minority investors?

    Comment by Jonathan | January 18, 2011 | Reply

    • Jonathan.. is it demand the increases the prices and not oversupply?

      Comment by jopard | January 18, 2011 | Reply

  8. 15.Hi Sir Gus

    you discussed in the seminar that there will be no significant change in the rate of dollar to peso this year. I have a steady income that comes to me in dollars. Do I invest in dollar denominated instruments (bonds, ROPs?)or do i convert it to invest in phil. stocks
    /mutual funds ? Does First Metro have dollar denominated equities?

    Comment by weena | January 18, 2011 | Reply

    • they do have dollar-denominated mf, if i am not mistaken.

      Comment by ricky | January 18, 2011 | Reply

  9. gus/guys/gals, any insights on HLCM?

    Comment by sdrobob | January 18, 2011 | Reply

  10. Hi Sir Gus, I have been following your blog and I like reading your optimistic views of the market while still remaining honest about its weak performance these past few weeks. I am always enlightened by your fundamental analyses, which I also take into consideration when doing my trades. I would like to ask your fundamental analysis/views regarding PNX (Phoenix Petroleum)? Despite its positive performance and promising growth as a company, its stock price doesn’t seem to reflect it?

    Comment by ronald | January 19, 2011 | Reply

  11. Hi Sir Gus,

    Sir what happened to Ore? NI and Nikl were UP..but ORE is going down….

    Comment by ronaldo | January 20, 2011 | Reply


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