Gus Cosio says so

Ideas on the Philippine Stock Market

Happy Days?

1:48pm  Wednesday  20 January 2011

Practically all of us who have been in the market this past few months have one thing in common.  We are all long in our portfolios.  Many are hurting and some are hurting very badly.  Today, when I looked at my portfolio after the market closed, I have only one stock that is making money.  The lucky position is that of NIKL.  I am happy to have kept this stock and even happier that my long-term view on the company seems to be working its way in the stock price.  Spot nickel prices eased a bit overnight, but it is still above US$25,000 per metric ton.  Copper prices have also remained firm, and it looks like the industrial metals group will be in favor as the U.S. shows signs of manufacturing recovery.

China posted 2010 annual GDP growth of 10.3% a tad higher than the 10.2% consensus forecast.  Watchers were looking for a smaller figure seeing that the monetary authorities have been tightening since the middle of the year.  Some regions will also be raising minimum wages in the months to come.  While the faster growth would normally be good for the China market, the counter intuitive thinking is that efforts at cooling the heating economy is not happening.  China may have more tightening to come.

Anyway, the Philippines has very little reason to tighten monetary policy.  there has been very little credit expansion.  Any growth in the money numbers have been due to income growth which is essentially non-inflationary.  Compounded by aggressive mopping up of excess bank liquidity through the SDAs, I cannot see how monetary tightening will squeeze any inflationary pressures since prices of rice and other agricultural commodities are beyond monetary tools.  Mathematically, price increases in the economy will just further tighten non-credit money expansion because any income growth will simply be used for paying for higher prices of food and transport.

What has that got to do with stock prices then?

Well, the inclination to invest in markets become less when interest rates are rising.  Investors tend to hold back until they have seen the extent of the interest rate hike.  This is probably why the property stocks have been badly hit over the last three trading days.  Investors are pricing in higher financing cost for developers and buyers which will tend to slow down both development and unit sales.

The question is, how is the slow down likely to happen?  Well, I am not really sure it will.  Mortgage rates in this country have not come down at all.  Very few are able to access single digit interest rates for housing.  In effect, interest rates have not fueled home buying demand.  Most buyers have been end-users and landlords who see positive yield in renting affordable units.  My inclination is to think that fears in he China housing bubble is being transferred here.  In spite of all these construction, I do not think that the Philippines is facing a housing bubble.  Perhaps, the high-end sector of the property market may just be approaching saturation point.  After all, how many really can afford to live in The Fort or McKinley or Ortigas or New Manila or Alabang.  But hey, when you talk about the fringes of the metropolis, apartment prices are not that demanding.

Anyway, people are running scared because many are long and wrong.  Is this the end of the rally that started in 2009?  Did we just have a blip and now it has all dissipated?

I am still the optimist.  This economy will show solid growth when the figures are released on the 31st of this month.  I think earnings growth will follow economic growth.  I think stocks are closely approaching realistically cheap levels.  Think about TEL.  There are very few sellers for this stock now.  Think about the mining sector; metal prices will surely raise profitability.  Think about the banks; should they raise lending rates, they will just be widening their spreads.

I do not want to raise false hopes.  If you have to cut losses at this point, by all means do so.  Just remember that when this thing bottoms out, happy days will be here again.  As of now, I’m off to Tacloban to give a talk to teachers.

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January 20, 2011 - Posted by | Uncategorized

32 Comments »

  1. i wonder when’s bottom out!he he he

    Comment by ricky | January 20, 2011 | Reply

    • if you can tell me, i’ll be forever indebted to you.

      Comment by Gus Cosio | January 20, 2011 | Reply

  2. im happy shopping during sales =)
    good buys are everywhere =)

    Comment by irving | January 20, 2011 | Reply

    • congrats! you have lots of cash for shopping!

      Comment by RmR | January 24, 2011 | Reply

  3. Sir,

    Wasn’t DMCI a really good buy at 32.8?

    Comment by Allen | January 20, 2011 | Reply

    • accumulated few at the closing =)

      Comment by irving | January 20, 2011 | Reply

      • Yes maybe brutal to bring it down to mid 20’s

        Comment by Mike | January 25, 2011

    • I think so too, but the market may be a bit brutal over the next few days.

      Comment by Gus Cosio | January 20, 2011 | Reply

  4. I’m optimistic as well. Last year was just the beginning…:D This is the year we make the Philippine economy better.

    Enjoy Tacloban Sir Gus! Don’t forget to try Ocho Restaurant…great and cheap seafood.

    Thank you for giving back to our teachers. I hope they get something out of your talk. Kumusta hit mga maestra. 😀

    Comment by Kristin | January 20, 2011 | Reply

    • Sir Gus, are you from Leyte? I’m half waray

      Comment by Nik | January 20, 2011 | Reply

      • I’m half waray also. My mom is a full blooded Taclobanon. That is why when I received an invitation to speak before region 8 Catholic school teachers, I just had to go. I hadn’t seen Tacloban since 1998. I’m here only til noon. I’ll catch a plane back to Manila at 1:30.

        Comment by Gus Cosio | January 20, 2011

    • The latest wave of NFS almost wiped out all my paper gains last December. Good thing I was able to sell my MPI, DMC and AGI shares. I’m patiently waiting to buy those stocks again at a comfortable level. Thanks also for Nickel Asia – it’s also my only stock that is making money right now.

      Like Kristin, I also recommend trying out Ocho seafoods and restaurant. Enjoy Tacloban Sir Gus!

      Comment by Anthony | January 20, 2011 | Reply

  5. im happy for the teachers..i hope they will realize through sir gus that stock investing can be for everyone 🙂

    Comment by cliffhanger | January 20, 2011 | Reply

    • Investment literacy is an advocacy of our firm. Actually, our mutual funds were established as corporate social responsibility to help teachers with investing for retirement.

      Comment by Gus Cosio | January 20, 2011 | Reply

  6. sir gus,
    i like your view on the interest rate’s effect of properties and tend to agree with conviction by focusing on it(ALI). only time will tell who’s right or wrong… just me.

    Comment by 100K_Pinoy_Fund | January 20, 2011 | Reply

  7. Sir Gus, I’m very glad that stock investing in our country is finally moving (in terms of participation) albeit in a snail pace. I hope someday we can have at least half of the populace invest in the stock market either via retail trading or mutual fund investment. Kudos! God Bless.

    Comment by Turtle Capital | January 20, 2011 | Reply

  8. I’m a little bit nervous really. But I still have some money left so i’m probably going to add some to my position. Maybe ORE or double RLC.. or heck, just pick up some more VLL.

    Comment by jasper | January 20, 2011 | Reply

    • Jasper,
      it is good to be nervous. It prevents you from being reckless. When markets drop like this, reality and humility sets in. We can lose all our gains if we think we know everything.

      Comment by Gus Cosio | January 20, 2011 | Reply

  9. I wasn’t able to unload my MER today. I was hoping that it would jump up again to 290. DMC and AGI are still on hand. I was trying to buy VLL at 2.73 and was shocked to see it zoom up seconds before the closing. 😦

    Enjoy Tacloban, Sir Gus. A lot of people need to hear some inspiring views on how to maximize the money they have on hand. )

    Comment by Shan | January 20, 2011 | Reply

  10. Sir Hus,

    What’s your thought on Vantage (V). Suddenly become active with good fundamentals and undervalued (B/V” 2.23).

    Comment by Ralph | January 20, 2011 | Reply

    • If you can afford to wait and be patient, there may be a pay-off. there are so many acquisitions going on; who knows if someone is interested in taking it over. try to fish for more information.

      Comment by Gus Cosio | January 20, 2011 | Reply

  11. question lang po…….how is SLI?….i recalled you said may 2p0 at 2.80 and approved by PSE, what happend?

    Comment by mike | January 20, 2011 | Reply

    • i heard SLI postponed their offering until September. punters do not want to wait that long. I actually reduced my position and sold some at a small gain, but with the small position I have left, I’m now under water. Fortunately, I can afford to wait.

      Comment by Gus Cosio | January 20, 2011 | Reply

  12. I’m still holding on till the fat lady sings. 🙂

    Comment by Jonathan | January 20, 2011 | Reply

  13. sir, until when are you here in Tacloban, and where’s the venue of your talk with the teachers? Am a reader of your blogs and I would like to thank you personally for such enlightening articles about the stock market.

    Comment by Leonito sabandal | January 20, 2011 | Reply

    • Leonito,
      It is at the Liceo de Verbo Divino. The audience will be representatives of CEAP schools from region 8. I’ll be there from 8:30 to 12. I’ll catch a plane to manila at 1:30.

      Comment by Gus Cosio | January 20, 2011 | Reply

  14. Sir Gus,

    I’ve just read MBT’s disclosure about the additional listing for the SRO. It said there it was 1.68 times oversubscribed. Would we be encountering further selling pressure by next week once the new shares have been listed? Specially now the foreigns got it at P50/share, do you expect MBT to go below P60?

    Comment by Neo | January 20, 2011 | Reply

    • It could, but I wouldn’t worry about it.

      Comment by Gus Cosio | January 20, 2011 | Reply

  15. sir gus, between MEG and VLL, who has the potential for a bigger upside and good outlook?

    Comment by frepoy | January 21, 2011 | Reply

    • I favor VLL due to valuation.

      Comment by Gus Cosio | January 21, 2011 | Reply

  16. Sir Gus, I have VLL at an average price of 3.11. Would it make sense if I cut losses (sample selling price @ 2.9) then buy back at a lower price (sample purchase price @ 2.7)?

    Comment by Sonn | January 21, 2011 | Reply

  17. I belong to those “some are hurting very badly” group he he, too glad i have a little “extra cash” for averaging down. Like irving said ” good buys are every where”

    Comment by jofoler | January 23, 2011 | Reply


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