8:00 am Friday 25 February 2011
The markets around the world continue to react to oil prices. I noticed that the European markets, except for the Swiss, were not as badly sold as the previous day. The U.S. indices were off overnight but only slightly. As a matter of fact, the Dow transportation index was up 0.45%. The markets recovered when oil prices eased a bit. I will not hold my breath for oil prices to go down though.
We are now living in a 100 dollar a barrel oil price scenario and prices of all commodities and goods and services will automatically adjust to that. I think that even if the Libya situation resolves itself soon, which I do not think it will, the anxiety of such sensitivity of oil prices to middle east politics will keep buyers inclined to keep stock levels higher than usual. That case can certainly be gleaned from China who in recently have tried to be ahead of the commodities curve.
Anyway, my worst case scenario is a re-rating of GDP growth prospects downward. At year-end, I was of the opinion that the Philippines had a strong growth trajectory due to prospects of heavy investment spending through Public Private Partnership (PPP) initiatives. I have become less enthusiastic about the prospect because I think infrastructure investors will be more discriminating with the global scenario becoming less stable.
I guess my message is that we should not expect a market recovery soon rather we should be open to the idea that this situation could languish for sometime. Some people may find it worrisome and perhaps a bit late to adjust portfolios. I reckon that if you have cash on your side, you may miss the first wave of a recovery rally, but you’ll still be able to find some bargains. My suggestion is to stick to fundamentally stong stocks which the market continues to favor. These are the power and related stocks like DMC (which owns part of Maynilad), MER, MPI, AP, EDC and MWC. The idea remains to be stability of earnings so you can throw in SCC in there also. If you get the urge to come in, I think you should stick to a narrow selection of highly tradable stocks without abandoning a trading mindset, at least not yet.