Gus Cosio says so

Ideas on the Philippine Stock Market

Thinking in a sleepy town

Tacloban

10:41pm  Thursday  20 January 2011

I was reading the Asian economic outlook of one of the major international investment banks on the plane.  What I wanted to find out from between the lines is whether or not a crisis is brewing somewhere in the world.  For an event to reverse the trend that emerging Asian markets have seen last year, it has to be in the same magnitude as the Asian Flu of 1997 or the U.S. sub-prime mortgage and banking crisis of 2007 to 2008.  The Euro zone sovereign debt crisis will not be as damaging because the countries inside euroland can muster enough resources among themselves.  The only negative is that they will put a drag on global economic growth.

Here in Asia, sovereign debt as a percentage of GDP is relatively low and government deficits are of even smaller percentages.  The Philippines for instance has foreign debt of roughly a quarter of its GDP and a budget deficit of low single digit proportions.  All of the ASEAN 5 have similar debt proportions which is really an off-shoot of the Asian financial crisis of 1998.  China is trying to rein in growth, but it has such a robust economy that growth seems to perpetuate itself.

Anyway, potential problems like the major crises of the past two decades plus the dot-com bubble at the turn of the century are nowhere in sight yet.  Yes, there is inflationary pressure but not to the degree that it was in 1982 when interest rates had gone sky-high to the high teens and low twenties. (Yes, I was already trading then but in the FX markets.)  The real big question for us locally is whether or not we’re seeing a major economic bottleneck that will be difficult to overcome.

I keep on scanning the landscape because I do not want to be blindsided as most people were in 2007.  The sub-prime and banking crises had lurked its ugly head but many chose to ignore the early signs.  As a result, a major bloodbath followed.  I do not think the credit squeeze in China is going to bring about any crisis.  If at all, the credit squeeze should mitigate it.  The U.S. on the other hand is starting to pick up steam and the manufacturing sector has reversed decades of a down-trend.  To top it all, they are very far from heating up so no potential bottlenecks there.  Housing may take some time to recover in the U.S., but I think it is also because everybody has one or two houses already.  Why buy more?

Nevertheless, I think that this consolidation could last a few more days.  I will not ask anyone to be a hero.  I would actually encourage people to sell some positions on rallies and get some cash back.  We could be trapped in this range for a few more months.  It could be a wide trading range evolving.  It may be time for counter intuitive thinking.

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January 20, 2011 - Posted by | Financial markets in Asia

28 Comments »

  1. your writings are truly an inspiration to us investors.

    thank you very much, and more power!

    Comment by yanyan | January 20, 2011 | Reply

  2. I’ve been following your blog for some time. It’s only now that I’ve thought of posting a comment. I find your blog educational.

    I have a question. This is not related to equities, though. I just want to know your comments on bond MFs. As the equities are currently going down, why are the bond prices going down, as well? Hope you could give any enlightenment on this as I am thinking of parking my investment on bond MF instead of equity MF.

    Thanks in advance.

    Comment by kirsten | January 20, 2011 | Reply

    • The tolerance of risk is the difference of the bond and equity MF investors. Bond is considered a safer investment compared to equity. Bond holders have the first right to the assets of a company while equities are the last to receive the remaining assets after all liabilities are settled.

      What will cause the price of a bond MF to go down? The prices of bonds will normally follow the market sentiment, like in 2009 (credit crisis), both Funds and Equity MF went down. Another thing to consider is the rising interest rates, once interest rates go UP, prices of the bonds will normally go DOWN. You should be aware that bond funds can lose as well but will not normally exceed 5-10% in a normal market environment.

      Comment by alexis | January 22, 2011 | Reply

  3. I am bracing myself for the days or months to come nas anything can happen. Although I was able to get my positions in DMC as low as 20.60, am thinking of top slicing them before the index hit 3800-3900. Enjoy your brief stay in Tacloban, Sir Gus.:)

    Comment by Shan | January 21, 2011 | Reply

    • Shan,
      good to top slice and have some cash handy. we don’t really know how deep this correction will be.

      Comment by Gus Cosio | January 22, 2011 | Reply

  4. Sir Gus, any thoughts on LND? Thank you.

    Comment by poorguy29 | January 21, 2011 | Reply

    • Poorguy,
      If you have some profits on LND, I think the best thing to do is sell and raise cash.

      Comment by Gus Cosio | January 22, 2011 | Reply

  5. Gold down to 1346…I think it could go down to 1200 within 6 months….Supply of Gold spike up last December but demand starts to fall…

    Comment by GoldBug | January 21, 2011 | Reply

  6. Hello Gus,

    Your entry made me reflect on the market as well. You mentioned being blind-sided by the last crisis, I felt exactly the same way then. But there were signs I chose to ignore. I feel the same way that the bull market has not run its course just yet.

    What I can’t seem to understand is where the pessimism is coming from? I’m not choosing to ignore the signs, I just don’t see them. Our macro figures seem to be solid, remittances, GDP, reserves, all point to a stronger economy. I guess my question sir is… “What are they talking about?”

    Twisted_pretzel

    Comment by twisted_pretzel | January 21, 2011 | Reply

    • i blame it on heavy profit taking. our market has run a very good course last year being on the all time highs that now, they say foreign funds are cashing in, no matter if prices are still undervalued. but still im not so sure about the correction. id like to hear sir gus on what he thinks and if he has experienced something like this before.

      Comment by cliffhanger | January 21, 2011 | Reply

    • Long overdue correction and money flowing back to us equities…….i think 3800 Is good level to buy

      Comment by Mike | January 25, 2011 | Reply

  7. Sir Gus,

    Thank you again for your views and I agree to get back some cash just to be safe. Let us wait and see what will happen in next few days. This is what is good in stocks trading…full of excitement. I attended your seminar and I find you real smart in person. God Bless all of us, especially in this blog.

    Comment by Simon | January 21, 2011 | Reply

  8. hi sir gus,

    is there any indication of how long a consolidation should be for it to be considered healthy?

    thanks,

    Comment by rey | January 21, 2011 | Reply

    • rey,
      it is anybody’s guess. the best we could do is to wait for signs of bottoming out. usually, it is when investors are no longer willing sellers.

      Comment by Gus Cosio | January 22, 2011 | Reply

  9. sir gus, do you think there is really a big problem on the properties sector? i do not know if it is a good idea to sell all my positions. im hold fli and meg.

    Thanks

    Comment by Jolly | January 21, 2011 | Reply

    • Jolly,

      what’s your average price for your FLI and MEG? I’m also thinking of holding.

      Comment by Johnny | January 21, 2011 | Reply

      • fli is 1.16 and meg at 2.14…

        some were saying that fli can reach 1 peso and meg at 1.80 pesos…not sure though..,but i think it is cheap at this level…

        Comment by Jolly | January 22, 2011

      • Not wanting to alarm you but meg’s low a few yrs back was .44 cents

        Comment by Mike | January 25, 2011

  10. I just tried to buy RLC@13.38 but didn’t get any offers. Oh well, at least i have some cash for next week..

    Comment by jasper | January 21, 2011 | Reply

  11. I am 7% red in my holdings and I don’t have any in my cash balace to average down 😦 Talk about hindsight (Sir Gus insists on leaving 20%!). Hmm, very tempted to sell low but my gut tells me to hold on for a bit longer. When will the consolidation end? Fundamentally, my picks are ok- DMC,FLI,ALI,AGI,DGTL and SMPH. What and when do I slice any off? Oh no, am I getting attached to my picks?

    Comment by weena | January 21, 2011 | Reply

  12. Hi Sir Gus,
    My portfolio is down 6%. I believe it is just a temporary condition since there are no bad news yet except for a lowering of expected GDP, the problem with FX between US and China and some small issues regarding Phil business. I believe I have to hold on. Am I quite right?
    Thanks!
    Gil

    Comment by Gil | January 21, 2011 | Reply

  13. Gus,

    I have almost half a million in Fami account (80% in equity and 20% in balance). Should I start moving it to Fixed Income Fund? I started Sept last year and started adding 100k every month..earned profit of almost 22k…then November rain hits up and as of this writing, i lose 1800..paper lost that is.

    In order to at least protect the value of my fund, you think its wise to move it now>

    let me know.

    Scared Investor

    Comment by Scared Investor | January 22, 2011 | Reply

  14. Nice article Sir. Now , only my speculative funds are making me some money. The rest of my investments are all sinking. I am thinking of averaging down and I am waiting a further drop in prices.

    Comment by Seth | January 22, 2011 | Reply

    • everybody’s playing a waiting game. the market is saying, this is it, time to enter, but we are not grabbing the opportunity. And we hate ourselves later because we “missed” the bus. We enter again when everything is up. Think about it.

      Comment by cliffjumper | January 22, 2011 | Reply

  15. I LOVE THE CONSOLIDATING MARKET NOW, I REALLY LOVE WHAT’S HAPPENING AT CEB, BUT I HAVE NO EXTRA CASH TO BUY WHEN ITS ALMOST 90PHP

    Comment by sam | January 22, 2011 | Reply

  16. I’m down to my last 10k pesos.. Now where do I put it I wonder.. :sneaky:

    Comment by jasper | January 24, 2011 | Reply

    • But meh, I’m getting really stressed by this. I’ll try not to open for the week. Its not like I can sell anything anyway. Most of them are in red now except for the old faithful – CHIB.

      Comment by jasper | January 24, 2011 | Reply

  17. I’m all red now except for vll which I bought for 2.62 today.

    Comment by weena | January 24, 2011 | Reply


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