Gus Cosio says so

Ideas on the Philippine Stock Market

A February effect

Thursday 10 February 2011

It looks like we cannot escape the negative sentiment of higher interest rates down the road.  Stocks in the Asian neighborhood are generally down with most players wary about China’s rate hike yesterday.  A Hong-Kong based economist at Credit Agricole says: “Global markets may begin to see the frequent rate hikes as a sign that a growth slowdown in China is inevitable.  But in the end, the move will be seen as a sign of strength, with solid growth momentum allowing policy makers to raise rates.”  What the guy probably means is that monetary authorities are not at all worried about halting the growth momentum in China.  They just have to cool down inflationary forces before it structurally prevents further growth.

Property prices had been a major concern for China since 2007 with the Olympics related boom in asset prices.  Actually, property prices have cooled down a bit but commodity prices have moved higher.

In the Philippines, property prices are also creeping up inspiring confidence among developers. I am not sure if the confidence of developers is credible enough, but ALI has been disclosing through mass media that it is looking to beat its record residential property launches of PhP50billion in 2010 with at least a double-digit increase for 2011.  Sales take-up by MEG and FLI in 2010 were very encouraging.  MEG disclosed sales of PhP39.6bn (+51%) while FLI said sales were PhP9.9bn (+42%).  There should be very good prospects for 2011  as  players land bank more aggressively with offers for the 103 hectares FTI property from MEG affiliate ELI of PhP14billion above the DoF’s minimum price of PhP13billion.  RLC  made an offer for the same property last month for an undisclosed amount.

Fundamentals are definitely sound but sentiment is ruling the trend and property stocks are among the worst performers YTD: MEG (-17%), RLC (-14%), and FLI (-11%). The reason I mention this is because in our seminar last week, our analyst Mark put a few stock through Benjamin Graham stock screener and RLC stood out.  I also saw a property report of two large houses having RLC as a top pick stock.  Considering the interest shown by some readers of this blog, I thought it appropriate to talk about the property sector and RLC which look to be both defensive and cheap valuations-wise.

I was thinking of the January effect that did not materialize this year.  In fact, the market had a very negative January taking February even lower.  Net foreign selling has not yet ceased, although it has slowed down.  Sentiment will eventually give way to fundamentals.  It would be wise to stick to stocks with strong fundamentals.

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February 10, 2011 - Posted by | Uncategorized

38 Comments »

  1. Which stocks will be immune from the bloody market next week? It seems we’ve been given reason to be more bearish due to the recent news 😦

    What’s your projection for DGTL in the short term? Will this go up next week?

    What are your views on Paxys Inc. ? What would be the impact on a stock if it sells-off one of its assets? (in this case ACS), does this imply a huge upside in the longrun for this company? Or has this reflected already in the recent spike last month?

    Comment by Jacky | February 10, 2011 | Reply

    • Jacky,
      I have no insight on Paxys. As to DGTL,
      I decided to hold on to this stock since late last year.

      Comment by Gus Cosio | February 10, 2011 | Reply

  2. I think its better if we avoid property stocks these few days, and invest on mining, which is doing great.

    what’s the latest with ORE gus?

    Comment by buhawi | February 10, 2011 | Reply

    • I can only update you when the analyst and fund managers return on Monday.

      Comment by Gus Cosio | February 10, 2011 | Reply

      • I am eagerly awaiting for the update on ORE sir gus.

        Comment by Bu$h | February 13, 2011

  3. I am hoping that this negative sentiment will be gone soon…fundamentals of a number of companies range from good to great, but the selling has not stopped.

    A great time to average down but we don’t know yet how low it’s going to get and when will the trend reverse….

    Comment by ricky | February 10, 2011 | Reply

  4. Much of the resistance comes from foreign selling. There are still foreign portfolios trying to unload (and return back home where returns are stronger- S&P500: +5% YTD) whenever the PSE tries to go up. Failed attempts to go up in turn weakens the support levels and as general rule of thumb whenever support is broken it becomes a resistance. So in essence, there’s a fundamental outflow of money from the system. The best measure of when it bottoms out is when the net flow of foreign funds becomes positive.

    Comment by Mars | February 10, 2011 | Reply

    • or to put it simply, when the index hits the 3600 zone.

      Comment by Jacky | February 10, 2011 | Reply

  5. Everyone has been selling in anticipation of the rate cut and I think that once it materializes stock prices will just capitulate for a few days at the most and then bounce up strongly. Increasing the interest rate minimally will really not wow investors into shifting away from equities and into savings or even t-bills.

    Mindful of confirmation bias, I hope that once people realize that from an investors standpoint the rate increase is really of minimal impact, a new base of higher prices will be formed, paving the way for a new high.

    With this in mind, my strategy is to start range trading with 50% of my money and to invest the other half into equity based UITFs a few days after the rate cut.

    What

    Comment by warren | February 10, 2011 | Reply

  6. Hi Sir, Since you are a long term trader, what do you think about the following as a long term hold?
    ELI
    LND
    CYBR

    Comment by BornOnChristmas | February 10, 2011 | Reply

    • I have no research on any of these.

      Comment by Gus Cosio | February 10, 2011 | Reply

  7. I’ll make an All-in tomorrow…happy trading:)

    Comment by All-IN | February 10, 2011 | Reply

  8. Hi guys, there is no point arguing against the market, when it went down yesterday, i told my friends to sell and raise cash. I`m 30% cash again now and rationally waiting for improvement in PSE market sentiment.

    Comment by Chris M. | February 10, 2011 | Reply

    • oh and btw, to wait now is not a rational thing to do

      Comment by chris munti | February 10, 2011 | Reply

  9. The PSEi breached the 3800 support level..

    Comment by jopard | February 10, 2011 | Reply

    • Jopard,
      It looks like 3620 is in the cards.

      Comment by Gus Cosio | February 10, 2011 | Reply

  10. Hi Sir Gus. What’s your stand on MER? I was able to buy it at 187 way back but was not able to unload it at 299.60. Is it time for me to let go or hold on? Thanks

    Comment by Shan | February 10, 2011 | Reply

    • you should hold for it, atlst 2 yrs, you’ll see..

      Comment by sam | February 10, 2011 | Reply

    • Shan,
      If I own MER at 187, I will keep it in my bottom drawer and just wait.

      Comment by Gus Cosio | February 10, 2011 | Reply

      • Sir gus, I agree with you on this. Thanks 🙂

        Comment by mike wallace | February 20, 2011

  11. this is exciting for those who have some cash.. so many undervalued will be popping out..

    Comment by cliffhanger | February 10, 2011 | Reply

  12. Mr. zulueta has just mention about NiHao on your previous blog, i’m also eyeing on this stock but none of my friends are recommending this stocks since they are not familiar with it,would you recommend it?

    Comment by Gorvanni | February 10, 2011 | Reply

    • I need to have a look. The reason I went into ORE was because I was able to verify the potential and the on the ground operations of ORE through reliable people. I will not touch a stock without understanding the fundamentals and the tangible value.

      Comment by Gus Cosio | February 10, 2011 | Reply

      • since i don’t have friends in stock trading. I am just relying on news specially on the great sir gus comments

        Comment by Bu$h | February 13, 2011

  13. Hi gus, I have MPI@P4.00 and EDC@P5.99 what would i buy to average down if I were to choose only 1 stock? thanks

    Comment by gabbysev | February 10, 2011 | Reply

    • Gabby,
      I am biased in favor of EDC.

      Comment by Gus Cosio | February 10, 2011 | Reply

  14. RECESSION NA MGA GUYS!!!!!!!!! I’m sitting on 98% cash na woohoo!

    Comment by Jeri Anping | February 10, 2011 | Reply

    • You’re a lucky man.

      Comment by Gus Cosio | February 10, 2011 | Reply

    • @Jeri the next thing maybe be Global STAGFLATION i dont think there will be another recession this year…US employment is not growing but the prices are.. like oil and soft and hard commodities….

      Comment by mike | February 10, 2011 | Reply

    • really?

      Comment by Gus Cosio | February 10, 2011 | Reply

      • napatanong bigla si sir Gus. hehehe…

        Sir Jeri A., please explain naman po ano basehan nyo at nasabi nyong “RECESSION” na para po sa nakararami. thanks.

        “the sky is falling” na po ba?

        Comment by RmR | February 12, 2011

  15. ganito pala sa stocks.
    my first time to experience “consolidation” (ba tawag dito? hehehe…) this long since I started in stocks June of last year.

    Comment by RmR | February 10, 2011 | Reply

    • This is real education; something you don’t read in books. Make sure to learn from it.

      Comment by Gus Cosio | February 10, 2011 | Reply

      • i will sir Gus. thanks!

        Comment by RmR | February 10, 2011

  16. Hi Sir Gus,

    I’m holding 100% now for these stocks: DGTL, VLL, EDC, JGS, AGI, MPI, which one should I let it go just to raise cash? -7% paper loss, the highest is VLL at -17%.

    Thanks for your inputs.

    Comment by alssy | February 10, 2011 | Reply

    • I also have paper loss at around that figure, with VLL as my biggest (paper) loser. But then, I only devoted 25% of my cash to stocks.The rest are invested on time deposits and mutual funds. I am thinking… maybe I should just forget about my online account for the time being. Who knows, after a year, I might just be surprised at how much the investment has appreciated.

      Comment by beanstalker | February 10, 2011 | Reply

  17. hi sir gus, I have ALI using peso cost averaging.

    Comment by Oliver | February 11, 2011 | Reply

    • how low na bro ang AEP mo sa ALI? good for you you still have cash for cost averaging…

      Comment by RmR | February 12, 2011 | Reply


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