First Metro Asset Management Inc

Did I hear someone sneeze?

5 pm Thursday May 14, 2009

PSEi – 2264.23    PHP/$ – 47.79

“When the U.S. sneezes, the whole world catches cold.”  This is an adage that market players from all over the world are well acquainted with.

In New York on Wednesday, the Institute for Supply Management (ISM) reported that U.S. retail sales unexpectedly fell for a second straight month.  The Dow Jones fell 184.22 (2.2%).  When the markets in Asia traded on Thursday, Japan’s Nikkei lost 2.6% closing at a two week low.  Hong Kong shares similarly fell 3% as confidence was dampened by doubts about the recovery in the U.S.  Even Bank of England Governor Mervyn King predicted “a relatively slow and protracted recovery” for the U.K. It really looks as if the world is catching cold.

No wonder the Philippine index dropped 19.4 points (0.85%) today.  This U.S. bug is just so virulent.   Nevertheless, we need to diagnose our market more closely.

If you look at how prices moved, the index dropped 26 points at mid-session but took back some of the losses by the close.  We saw across the board profit-taking in the likes of ALI, MEG, FLI, MBT, PNB, and even TEL.  Upon examining whether or not selling was heavy, it seems to me that there were enough buyers to pick up the slack in prices.  It’s not what a sell-off looks like especially since the market recovered 7 points going into the close.  I think this market is just taking a breather from the surge of the past few weeks.  It’s looking reasonably healthy.

The other day, the Bureau of Treasury auctioned a re-issue of the active five year FXTN.  There were Php23.3 billion in bids versus an award of Php8.5 billion or an over subscription of 2.8 times.  The average bid yield was 6.178% while the high bid yield was 6.185%.  This was a very strong auction.  What this tells us is that investors are really scrambling for yields because they are sitting in too much cash.

Amidst the doom and gloom in the global markets, there seems to be comfortable cushion that the domestic market is enjoying.  I had mentioned a widening savings-investment gap in the Philippines. We are seeing that gap being manifested in the market today.

According to Nobel Prize-winning economist Paul Krugman speaking in a forum in Taipei today, “The world economy may face near- stagnation for 10 years similar to Japan’s ‘lost decade’ in the 1990s.”

In contrast, fellow laureate Joseph Stiglitz speaking in Beijing yesterday said, “The world economy may ‘bottom soon’ after declining at a slower rate.”  “We are at the end of the beginning, rather than the beginning of the end,” Stiglitz said. “The global economy may be declining at a slower rate and we may see a bottom soon, but it doesn’t mean a full recovery.”

Two economists from the same fold, two slightly different opinions.

The beauty of the market place is that it reflects the different points of view of many players.  That is how we get price discovery.  Just like in a hospital, some of the patients are really sick while some are there just for a check-up so they can remain healthy.  The U.S. sneezed Wednesday night; perhaps some markets have already developed anti-bodies.

Here’s to good health!

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First Metro Asset Management Inc