9:00am    Wednesday   7 April 2010   Philippine Stock Exchange Index   3253.48  (+2.093)

It was a day when absolutely all the most actively traded stocks had closed up for the day.  I really liked the market as I came to the office Tuesday morning, but I did not expect for the index to rise by 66.71 points.  What puzzles me more is that, in the face of the uncertainty of the coming elections, stock prices continue its march forward. The market may be telling us something here.

There are a few things that contribute to this positive outlook.  There is the economy that looks like it is sustaining its recovery.  If you recall, Meralco power output was up 22.4% in January.  Well, the same economists who use Meralco power sales as a surrogate for economic activity told me this morning that the number is up again in February, this time by 14%.  The telling information is that the growth is coming from industrial sales of electricity.  That indicator is consistent with the export volumes that are also increasing.

Of course, there is also the pumped up consumer spending arising from the campaign activity among candidates.  All around the country, we see printing presses humming loudly, T-shirt makers busily cranking up more of their colorful rags and eating places full of campaign volunteers who mill around after campaign sorties.  Everybody is using their cell phones more frequently and surfing the internet more frequently.  This is on top of the raised level of spending on soft drinks, juices and in some occasions – beer. There seems to be a level of enthusiasm and possibly hope that accompanies this election in spite of all the fears and anxieties that have been raised about failure of elections, GMA machination to extend her term and even a possible post-election Junta.

We had expected that consumer spending would be raised, but the Meralco sales that I mentioned earlier, if you break it down by type of consumption, indicates that the increase in use did not come from consumers but from industrial users.  You can view a monthly economic and market publication at called “The Market Call” at http://www.fami.com.ph to get more details of economic indicators.

So is the market “irrationally exuberant”?  Are investors throwing caution to the wind unmindful that things could go wrong between now and May 10.  For one, I do not think that  and punters alike do not read the newspapers or watch news broadcasts on television.  Practically all possible post-election scenarios have been expressed by our highly opinionated newspaper columnists and radio/TV commentators, so everything looks to be out in the open.  This to me is the process of “discounting” where investors look at the possible even risks, super-imposes the information against macroeconomic and company fundamentals, makes their own conclusion and vote with their money.  Yesterday’s market had value turnover of over Php 4 billion which is a high level of participation in this market so the sentiment appears to be widespread.  Judging further from research coming from both local and foreign stock brokers and investment firms, it appears that investors are looking beyond the election already.

The question is “does this make sense?”  Personally, I would still be prudent because investors should always be and that is 100% of the time.  This means that I would not be fully invested at this point of time.  If I have good level of profits, I would top-slice, i.e. sell part of the portfolio to cash in.  Furthermore, I would sell all of my weak issues even if it were at a loss and just stick to strong liquid issues.

8:30 am   Wednesday    3 February  2010     Philippine Stock Exchange Index    3061.89  (-0.552%)

In trying to gauge what continues to drive the market, I would like to share two pieces of news I picked up  from Bloomberg today.  The first is the BTr auction of 3-year bonds which fetched 5.160 percent yield.  It was a very strong auction which was more than 3 times oversubscribed and the entire issue was awarded at only one price.  The second was a statement coming from BSP Deputy Governor Diwa Guinigundo saying that Philippines’ domestic financial market is “very liquid” and can cover the government’s funding needs.  This statement was made in the backdrop of the National Government’s plans to issue  multi-currency bonds to OFWs.

What does this tell us?  From what I remember of the  quantity theory of money lessons when I was an economics student, aside from demand for transaction balances, people will either keep your money in interest bearing instruments or if interest rates are pretty low, you will try to find better returns in other assets.  I think this tension between the DoF and the BSP is betraying to us what the underlying demand for assets would be.  Given that returns on 3-year government bonds are below 5% after tax, the case in favor of buying stocks is looking stronger.

Then we see the  market getting more interesting.  While the index is down 17 points, the mood looks to be up-beat.  The stocks that pulled the PSEi down were ALI, MER, BPI, EDC, SM, AEV, PX, RLC, MBT and MWC.  These had been the stronger stocks in the recovery from the lows of January.  Those that kept the index hanging in there were TEL, FHP, AGI, AC, ICT, BDO, DMC, FGEN, FLI, GLO and PSE; these were stocks that were lagging the market.  It looks to that the money does not want to leave the market.   For example, ALI had gone up 6 percent over the past week while TEL was up only 3%, so some investors are selling ALI and buying of TEL.  FPH was strong today because of the closure of the MER option with MVP’s group.  MER, on the other hand, lost some steam because it had become clear that control of MER is no longer an issue.

In the coming days, each stock will be following its own story for the time being.  Sentiment looks constructive except that I think many will be unwilling to add new cash toward new positions.  They will not be pulling cash out as well because there is very little yield elsewehere.  Rotation buying will probably be the flavor of this week, and we are seeing it already among second and third liners.  These stocks usually benefit when rotation sets in.

A piece of good news is TEL which came out with their full 2009 results without any surprises.  Core earnings were Php 41 billion while net income was Php 39.8 billion.  They expect 2010 earnings to be around Php 41 billion as well.  They will be paying out Php 141 dividends this month.  TEL will likely remain firm until ex-dividend date due to the dividend play on the stock.

9:00am    Tuesday  2 March 2010        Philippine Stock Exchange Index   3078.91  (+1.16%)  pre-opening

On Monday’s trades, the property sector really pulled out a good one.  Practically all stocks in this sector went up.  I think that investors are re-thinking strategies in property, now that the major effects of Ondoy are all behind us.  Recall that much of the property sector took a beating right after the typhoon, and it is only now that they are recovering.  If you look back just over a week, it was the up-beat investor presentation of ALI that gave a fresh new outlook on property.  In the next few days, liquid property stocks should be shifting to higher gear.  FLI, for one, should be seeing a comeback since it remains to be one of the undervalued property stocks.  MEG had also tanked a lot from its recent highs that it should make sense to trade MEG and its accompanying warrants MEGW1.  Given the move already seen in ALI and RLC, I think SMPH should be seeing a bounce as well very soon as 9.40 looks cheap for the stock.

Looking at other possibilities, last week, there was an article in the Wall Street Journal about The Coca Cola Company buying up its bottlers in the U.S.  In the deal, they will buy control of Coke bottlers in the U.S., Norway and Sweden.  The deal comes as PepsiCo prepares to close its acquisition of its two largest bottlers — Pepsi Bottling Group and Pepsi Americas.

Analysts say that the moves signal that the soft-drink titans want to take greater control over how and which of their products move through the production pipeline to their consumers.  A Morningstar portfolio analyst wrote: “Over the last decade in mature markets, consumer tastes have shifted away from carbonated soda to still beverages such as juices and ready-to-drink teas and coffees, as consumers have demanded products with a lower sugar content.  In order to mitigate falling volumes and to maintain market share, Coca-Cola has been forced to broaden its portfolio into non soda categories.”

The reason I am pointing this out is not so much that I think that PepsiCo will be buying out the local bottler in the Philippines, but because we know for a fact that while Pepsi is not at the top of the soda pop market, nobody comes close to its Gatorade share of the sports drink market.  When I spoke to the CFO of PIP, he told me that historical sales figures sky-rocket when the weather is hot and dry, and with El Nino firmly in our atmosphere, there is no doubt about sales going in their favor not only in the mass marketed carbonated products but probably even more so in the upmarket, high margin Gatorade line.  We should keep an eye on this stock because it could just pull a surprise soon.  I would suggest watching it for some volume spikes.

I mentioned 2 weeks ago that there may be a move on BPC.  Today’s trades in the stock is signaling a move; after we saw volume spikes on Feb. 11 & 17 and today’s spike, I think there is potential for a sharp us tick.  Given the rumblings going on in MER and FPH, I suspect that it is affecting the price of BPC.  I’m looking at this just for a trade simply because it has given a trading buy signal for me.

The U.S. market opened strongly due to positive news that AIG had sold its Asian operations to Prudential UK.  The news overshadowed the disappointing results from HSBC.  The February ISM figure came in at 56.5 vs. 58.4 in January which was below expectation of 57.5.  The employment index inside the ISM, however, rose to 56.1 from 53.3 which showed that manufacturers are willing to hire when they have new orders.  What impresses me is the steady rise of the Philadelphia Semi Conductor Index which had hit rock bottom in November 2008.  Chip sales rose 0.3 percent in January from December but were up a whopping 47 percent compared to the same period a year ago.  About 50% of the Philippines’ exports is made up of semi-conductors and similar products.

With the U.S. markets gaining some more, I think that local market sentiment should be buoyed.  Over-all, I would still be cautious particularly for index stocks.  I am not of the opinion that we will convincingly break out of the 3100 top of this range.  Strictly speaking, the high is 3130, but I do not wan to be a stickler for too much detail.  Right now, I sense that some profit had been made from the beginning of February until today.  I wouldn’t be surprised if some profit-takers came out of the wood work in the coming days.  As for today, I think a trading buy might work with some stocks.

11:30 am   Monday    22 February 2010     Philippine Stock Exchange Index     3000.54  (mid-seesion up 22 points or +0.74%)

Overall, It looks like the markets have taken the hike in the U.S. discount rate positively.  The message that is being received is precisely what the U.S. FED wanted to communicate, and that is that the economy is beginning to normalize.  Since the discount window is an emergency channel for banks in trouble, the general idea is that the banking system as a whole is out of the woods and is no longer in need of emergency assistance.  Read more

10:10 am  Friday   19 February 2010   Philippine Stock Exchange Index 2983.04 (mid session trading)

Wall Street and the rest of the developed markets were up overnight. Three minutes after the markets had closed, the Federal Reserve Bank took away the punch bowl by raising the discount rate to 0.75%.  The market was expecting the hike, but not until the FED would have met on March.  The fact that the FED chose to act earlier appears to be a signal that there is urgency in the move.  The significance of this move is the end of the decline in policy rates and possibly the beginnings of an upward trend in interest rates.

Initial reactions to the hike were:  1. The S&P 500 Financial Select Sector SPDR fund, an exchange- traded fund that tracks financial stocks fell 0.9% in after-hours trade, erasing its gain from the regular session.  Shares of Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp. each retreated more than 1 percent.  2. The MSCI Asia Pacific Index lost 0.5 percent as of 9:43 a.m. in Tokyo, and  futures on the Standard & Poor’s 500 Index expiring in March lost 0.8 percent.

I would say these are knee jerk reactions because businesses start to get worried that cost of borrowing would rise.  In two year U.S. treasuries, the yield went up by 2.5 basis points to 0.952.  I would say absolute levels of borrowings are still pretty low and the U.S. dollar yield curve had been very steep over the last  year and a half that what would really matter is not nominal interest rates but the spread that companies pay for long-term borrowings.  That does not look to be drastically threatened by the FED’s move.  If at all, I think it signals investors that monetary authorities will not relent on their responsibility in mitigating any inflation down the road.

The local market opened 13 points lower, roughly 0.4% down.  As of this writing, the index declined another 5 points so we are now down around 0.6%.  The question that will start to bug people is that whether this will be the start of a reversal of the up-trend that we had seen to have started in march 2009.  While it is too soon to really tell, I tend to think that the trend is not yet over.  What we may see now is a deeper correction, but if the global economy is improving, earnings is bound to follow.  Why then should stock prices decline precipitously.  I think that it is even good that the U.S. has raised its rates because it should make the U.S. currency stronger which is positive for the Philippine economy.  Remember, our GDP consists 40% exports and OFW remittances fuels 70% of consumption spending.

I think the fundamentals for local equities remain intact. I think the local banks are not as vulnerable to this move as their counterparts in the U.S. as bank liquid assets have been persistently high.  If at all, they will probably see wider net interest margins in their FCDU book.  I would look for opportunities to buy local banking stocks MBT, BPI, UBP, SECB, CHIB and PNB.  For a stock like TEL which has a huge U.S. dollar cash flow, I think that things can only go better with a higher dollar.  The same possibly holds true for GLO.  A quick positive move was seen in the price of TUNA which moved higher because most of its sales go to exports.

Anyway, it is again a time for a long hard look at portfolios because this move should give us a chance to buy strong stocks at a bargain.  I am referring to the likes of AP, URC and RLC which have been unrelenting in their price appreciation.  I believe that there would be a lot of room for these stock to go.

8;30pm   Wednesday   17 November  2010   Philippine Stock Exchange Index   3018.67 (+1.71%)

It is really no wonder that the market is up today.  Encouragement always come from Wall Street, although there are quite a bit of fundamentals that are helping us out.  For one, there is a lot of cash in local investors hands that cannot find a decent yield.  A lot of wealthy people are getting restless looking for places where they can squeeze some yields.  The government deficit which is considered the current drag on the domestic financial markets is not really that bad specially if you framework it in the backdrop of Portugal, Ireland, Greece, and Spain.  All these countries have budget deficits way above the European Monetary Union (EMU) agreement of 3% of GDP.  These four countries have deficits at double digits while the Philippines is only 3.4% of GDP.  We are more qualified to be in the EMU than these four countries which now carry the acronym PIGS.

If you ask my investment advise, I would recommend the domestic market over the PIGS at this point in time.  Most of you probably realize that credit spreads for Philippine sovereign bonds hardly moved after Greece’s credit crisis.  Something like that never happened in my life in the financial markets.  The world truly has changed.

I quite like the way our market behaved today with fundamentally strong stocks leading the way.  Except for BEL which had total crosses amounting to around 300 million pesos, the most active list was dominated by the like os TEL, GLO, FPH, AC, MBT, EDC, MBT, ALI, SM, AGI, URC and MPI.  All these stocks have good underlying earnings.  Some may be expensive valuations wise, but they have solid fundamentals behind them.  While we face potential profit taking because we have had six days of price increases, the short-term trend still looks good and I base my opinion on the price ranges of stocks like TEl and MBT.  I think TEL will rise to above 2600 probably to 2660 and MBT will likely go to at least 47.  AC could return to 300 while MPI could go up to 2.90 and MEG to 1.40.

Small cap stocks like TUNA and PIP looked poised to do return to their stronger price levels before the end of 2009 and some smaller cap stocks look to be in play.  I am not encouraging speculation on small caps with no fundamental earnings, but stocks like CYBR looks like it is being accumulated by their core investors.  I think that at this point, a lot of people are willing to play the game and will continue to fuel buying.  I would caution, however, about being to bullish because we still have the uncertainty of elections three months down the road.  To sum it up, I would suggest that if you want to make some money, you can trade the blue chips until they approach the highs of their recent trading ranges.  I think there will be a second chance to get them back within the next two months should you choose to take profits.

The vulnerability of our market will be from external market sentiment and our national elections.  I think these factors are what we should make our stock plays on.  Incidentally, we have been seeing steady foreign buying over the last two weeks.

12:30 pm   Monday   15 February 2010  Philippine stock Exchange Index    2963.24  (+0.46%)

In the dynamics of any market, there are periods when prices do not move in a directional trend.  Normally, stock prices move up because there are very strong reasons to increase investors holdings of stocks.  When the broad economy is healthy, the business environment becomes robust and companies expect to make good profits and return this to investors by way of dividends or higher values of assets.  Of course, when there is a threat to the smooth running of the economy or it becomes clear that the economy is contracting, the opposite happens.  Business uncertainty always drives investors into conservatism.

In trending markets, i.e. rising or falling prices, we come to periods when asset prices have gone beyond investors expectations or returns have become to good to pass up.  This is when consolidation sets in and it is normally when trading ranges occur.  In the case of the Philippine stock market, we saw a 63 % return for the index in 2009;  it is but natural for investors to try to consolidate these gains by taking back cash into their positions which means selling into further strength.  Remember that among experienced investors or traders, no one is so cock-eyed to believe that markets are like a balloon which floats up in the air and never comes down.

Presently, there are factors which are causing investors to protect their portfolios.  A few weeks back, the U.S. heard their president say that he would force banks to get rid of their risky positions taking the U.S. market into a tailspin.  This was followed by the anxiety on Greece’s debt situation, once again raising levels of anxiety in the market.    Last Friday in China, the people’s Bank of China raised reserve requirements for the second time in a month responding to loan growth which continues to accelerate and causing property prices to surge once more.  While the short-term effect is to see markets respond negatively, its longer term effect is to avert asset bubbles and restrain inflation particularly since the China economy grew 10.7 percent in the fourth quarter from a year earlier, the fastest pace in two years.

In contrast, the Euro Area declined a seasonally adjusted 2.1 percent in the fourth quarter, and  for the full year, the economy contracted 4 percent.  Industrial production in the region fell 1.7 percent in December, the most in 10 months.  Meanwhile, in the U.S., retail sales rose in January, but a separate consumer-sentiment index fell in February, indicating mixed signals coming from the economy. Stripping out autos, gasoline and building – core retail sales rebounded by 0.8% after declining by 0.3% in December.  Core retail sales are up 5.3% over the last three months at an annualized rate, an indication of robust growth in household consumption.   This reflects a healthier picture compared to the headline data.

The difficult thing about markets is that they are always fickle.  Markets will react in the most whimsical way, but, in my opinion, the bottom line is always dependent on the cash positions of both individual and institutional investor.  Over the last two months, I reckon that many portfolios had become fully weighted in their equity positions.  Having little in their cash balance, they become edgy causing them to sell on early indications that markets could fall.  This is what leads me to think that markets would trade in a range over the next few weeks, and the range will continue for as long as investors are not yet comfortable with their cash balances.  When they have enough cash to again put at risk again, then the rally continues.

In the meantime, it would be interesting to see what happens to Greece and the rest of Europe, after all, most of Asia will be closed these two days because of Chinese New Year.  It would also be useful to check your portfolios for stocks that have become expensive compared to their cheapest levels in 2009.