Gus Cosio says so

Ideas on the Philippine Stock Market

Kiss and TEL

6:50 pm  Monday  21 February 2011

A three-day weekend at the Bohol Beach Club on Panglao Island was something worth spending money on.  The price of a room was pretty reasonable, air-conditioned with all the amenities, and the enjoyment factor was very high.  They have a very long stretch of white sand beach where the water looks so inviting looking so crystal clear.  They also have several pools in the facility where you can swim if you did not want to swim in the sea.  You can also get a massage in a canopy right next to the beach so you can enjoy the fresh sea breeze while getting a relaxing shiatsu.  I would have wanted to stay longer, but work beckons.

The good thing about getting away is it gives you a fresh perspective on things like the market.  For people like us who are in the market everyday, the danger is to get too immersed one way or another and you get drowned in day-to-day stock price movements.  Getting away is like standing back and looking at the forest rather than the trees.  I tried to think what the big picture was by reading the Global Monetary Analyst (the Analyst) by Morgan Stanley.  The reason why I like to follow the Analyst is because it gives the true big picture based of quantifiable and observable data.  It gives you an idea of how the money/liquidity is being created by the aggregate economy and where the money/liquidity is moving globally.

Reading the GMA in 2008 and 2009 gave me the insight to call the markets bottom in March 2009.  This time around the idea that the GMA presents is the global re-balancing.  In the past 30 years, the emerging markets as a group had been steadily accumulating reserves because of their high savings rate.  This was disrupted by the 1997 Asian crisis but had resumed into the following decade.  Incidentally, the Philippines had only stepped up its savings rate and international reserves after 2003.  The global re-balancing being alluded to is the prospective rise in investment spending in emerging markets and the moderation of the growth of savings and reserves.  This is because the share of investments of emerging markets (EM) in the global economy is larger now than it was a decade ago.

The reason I mention this is to help us gain confidence on what to expect in the Philippine market going forward.  Our economy is one that is still playing catch up with the faster growing EMs.  We have not entered into the stage of bottlenecks where the faster markets are in right now.  Nevertheless, we are being lumped up with the rest of the EM in as far as markets are concerned since global portfolio managers initially look at the major global trends before tweaking for every local market.  The most important consideration that we must look out for is whether the markets are in for a big move in the magnitude direction we saw in 2008.  Personally, I believe that we are not looking at anything like 2008 when the market was in the brink of collapse globally.

A global re-balancing, nevertheless, hurts us because it makes no distinction as to value of individual markets or stocks.  Fund managers simply re-allocate and it would not matter at the onset whether individual prospects are good or not. Re-allocation just has to be done.

Anyway, I think local investors will eventually take up the slack arising from the selling of foreign funds.  I think some foreign funds are gradually accumulating on weakness, but that does not mean that other foreign funds will not sell if we take the markets higher.  In my view, we will have to trade below 3800 before we see the market higher.  Sellers continue to get rid  of their TEL which highlights the fact that they are not focused on value.  We will probably see further weakness, but severe weakness that will alter the up trend is still quite remote.

What is encouraging in today’s trading is to see net foreign buying in spite of declining prices and low value turnover.  Does that say anything at all.  Anyway, I would stay focused on some stocks I like – EDC, DMC, RLC.  I am gathering some research which I will make comments on tomorrow.

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February 21, 2011 - Posted by | Financial markets in Asia

31 Comments »

  1. That post seems very encouraging Sir Gus. I think we should follow your lead of taking a time off from the markets for now and just wait it out until the foreign buying steps up once again.

    P.S. I would like to iterate that I am not connected to “Chris munti” in any way

    Comment by Chris M. | February 21, 2011 | Reply

  2. as always, thanks for the beautiful insights sir Gus.

    Comment by jopet | February 21, 2011 | Reply

  3. LOL! inunahan na… you made me smile a bit today bro Chris M.

    Sir Gus, I would like to add EDC on my portfolio as per your advice to me before. long term hold on this one. is EDC better than AP? thanks sir

    Comment by RmR | February 21, 2011 | Reply

    • RmR, EDC and AP are catering to different markets so at best we can say that any of them is as good as a long-term investment as the other. The only question is which one has a higher room for growth. In my opinion, EDC’s price offers a higher growth potential; AP has skyrocketed in 2010 already and I guess the earnings growth for five years from now has been priced in. But if you are considering EDC, you might as well try to look at another listed company which it is currently partnering with in a geothermal project in Maibarara. I am talking about PERC. Healthy fundamentals and currently looking to expand their portfolio by partnering with EDC. 🙂

      Comment by roberth | February 21, 2011 | Reply

      • thanks a lot bro! i’ll check out PERC also. God bless

        Comment by RmR | February 21, 2011

      • Somebody is also using my name. I did not post above but like cliff & jasper, this somebody using my name. Hope he/she has no bad intentions coz i am ready to protect this blog in anyway. roberth

        Comment by roberth | February 22, 2011

  4. glad you enjoyed your vacation sir gus. i hope Bohol Beach Club gave you the room for free since they will be having a spike in their sales due to your good reviews. (bohol beach club: hmmm why all of a sudden we get a lot of stock market people in here) hehehe

    anyway, back to the numbers game.

    EDC

    sales 2009-2010 = 22067, 25848

    Earnings per Share 2009-2010 = 0.18, 0.39

    EPS from 2009-2010 doubled while sales are virtually the same. makes me wonder how they did it; is it through cost cutting or through buying back shares and cancelling them…

    Comment by cliffhanger | February 21, 2011 | Reply

    • or maybe their operations became more efficient which led to less expenses, more output.

      remember that EDC is into green energy sources so operational expenses are not only significantly less compared to others like coal-powered plants, but also would not fluctuate that much.

      Comment by ricky | February 21, 2011 | Reply

    • What I remembered is EDC writeoff (charged to expense) in 2009 around 2.5 Billion pesos deferred taxes due to the effectively of the Renewable Energy Law, thus the operating income was drastically reduced. Year 2010 reflected the normal operating income of EDC.

      Comment by Ralph | February 22, 2011 | Reply

      • yes you are right, mainly due to the writeoff. In addition, they did a lot of development in their system which made the power production more efficient thus better margin.

        Comment by jonard | February 22, 2011

  5. Somebody is posting as jasper – and my posts kept getting deleted. Wish that jasper will find some other name like jasper1 or something so there will be no confusion.

    Comment by jasper | February 21, 2011 | Reply

    • someone has also been using my name

      Comment by cliffhanger | February 21, 2011 | Reply

  6. EDC always sideways and have trouble passing 6 pesos. maybe this better for multi-year investing than trading.

    Comment by johnny | February 21, 2011 | Reply

    • The Spike in Oil price is good for EDC i think brent Oil will rise to 120-140 if Libya situation worsen…

      Comment by kenu | February 21, 2011 | Reply

    • hmmm….when I started buying EDC it was at 4.1 level…my friend says..”that is high”…then it reaches 4.7 and buy some more and my friend said…”that is crazy”…when it reaches 5.5 he started buying…my point here is long time investing based on fundamentals makes sense….though I sold some at 6.53 last Oct 2010. I started buying again EDC at 5.5 level. If you check the disclosures on EDC….the officers are buying a lot recently and the weighted average is 5.83. For me there’s a lot of reason to sell a stocks and only one reason to buy it….it means it will be profitable in the future….

      just my 2 cents.

      Comment by jonard | February 22, 2011 | Reply

  7. I believe that as well and reading it from a Guru is indeed a confirmation. More power, Sir Gus! 🙂

    Comment by Shan | February 22, 2011 | Reply

  8. Sir Gus,

    Why does the market data for FAMI were not available in bloomberg? These were available a month ago.

    http://www.bloomberg.com/markets/funds/country/philippines/

    Thanks.

    Comment by Jamm | February 22, 2011 | Reply

  9. Hello sir gus,

    You mentioned that you correctly predicted the market to bottom out during march of 2009? What sort of factors were you looking for then? Thanks!

    Comment by twisted_pretzel | February 22, 2011 | Reply

    • Twisted pretzel,
      at that time we suffered a great loss in market liquidity. the Analyst gave some ideas on how to gauge whether liquidity was becoming available in the market. also, seeing that fundamentals were no longer deteriorating judging by close scrutiny by buy-side analysts on the trailing figures as well as guidance from companies themselves. in other words, global and local liquidity plus objective valuation gave me an idea that the risk reward ratio was in favor of the investor, i.e. when risk was at its most expensive viewed from downside volatility, reward was at its highest. then again, this was quite subjective. I delivered a talk at the pension fund managers summit in Hong Kong on opportunistic investing at that time,and of all those in attendance, only one agreed with me. That highlighted tome that almost everyone was putting a high price on risk.

      Comment by Gus Cosio | February 22, 2011 | Reply

  10. This is sad. One on one in-your-face-bashing and a ping pong game of tirades a week ago, now – some people are having identity crises and are stealing names! It would be the lowest of low if somebody will comment using Gus Cosio’s name.

    Grow up Guys!

    Comment by gelineohara | February 22, 2011 | Reply

    • I agree. That’s why I am now offering sir Gus my services for a free trial period. 🙂

      Comment by Garry DC | February 22, 2011 | Reply

      • Garry,

        Free Trial? Do you mean you’re gonna make Gus pay later on? Hmm

        Comment by Alijeffty C. Gonzales | February 22, 2011

      • if what Garry is saying is true, it reminds me how professional hackers attack a site first and then offer their (not exactly free) service to the victim.. parang Microsoft lang; imbento muna ng virus bago benta ng anti-virus

        Comment by joppy gwapo | February 22, 2011

  11. I don’t know about you guys, but i am getting pretty tired of seeing all red in my portfolio… times like this, patience is truly a virtue.

    Comment by arce | February 22, 2011 | Reply

    • In my case, I treat my stock portfolio as a separate savings/investment account. Every month I put a portion of my salary into it so I don’t mind if its red since it is a buying opportunity for me. Also I make sure I have sufficient emergency fund (enough to cover my 3 year expenses). This made me less vulnerable (emotionally and psychologically) by the market…

      Comment by jonard | February 23, 2011 | Reply

  12. Tme Out from the market Sir Gus.
    Im from Cebu and I was also there.
    I hesitated to approach you since you were quite busy with your other half. So do I.
    Just new in stock market.
    Presently holding 100% cash.
    Cautious na. Ayaw ko nang mag tuition sa market.
    Following your blog, waiting the right timing to re-enter the market. God bless Sir!

    Comment by noel | February 22, 2011 | Reply

  13. Sir, right now everyone has taken the lead of the foreign funds in selling whatever stakes they have in the market. Those who have taken their profits in 2010 seem hesitant to buy back in, especially, now that the market seems to be bottomless so to speak, in light of current events. What do you think will trigger Filipino investors to come back into the market?

    Comment by danielcc | February 23, 2011 | Reply

  14. Oh my God, they’re even using my name without me knowing, tsk tsk.

    “I agree. That’s why I am now offering sir Gus my services for a free trial period. ”

    This definitely didn’t come from me. What a low life.

    I’m offering my service for FREE, no conditions attached.

    Comment by Garry DC | February 24, 2011 | Reply

    • Do you usually offer your services for free, and with no strings attached, to anyone who needs it? What is the catch?

      Comment by mirasu66 | February 24, 2011 | Reply

      • Mirasu66 – not necessarily. I’m just a big fan of this site and I don’t it to disappear that’s why I want to help Sir Gus. But don’t get me wrong, I do charge for regular clients, but that’s another story.

        Comment by Garry DC | February 24, 2011

      • Garry, thank you for the clarification. But how exactly do you plan to help Sir Gus with regards to his blogsite? I also do not want it to disappear, but there are other readers here, such as jhesqi, who also want to extend their voluntary assistance. I also have an inkling about who the culprit is.

        Comment by mirasu66 | February 24, 2011


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