5:00 pm   Tuesday  June 16, 2009     PSEi 2514.17 (-3.78%)   Php/$  48.27

It’s one of those days when everybody is having a bad day.  Imagine, we just had a very strong run of TEL and GLO yesterday; and all of a sudden today, the market tanks almost a hundred points.  Actually, in the region stock markets have been tumbling.  The Philippine market was the only outlier yesterday as everyone in the neighborhood had declined while we were up 14 points.  Today, the bloodbath continues in Tokyo (down 2.86%), in Hongkong (down 1.8%), in Singapore (down 1.8%) and in Jakarta (down 2.46%).  If our market is down more sharply today compared to the region, it is because we were up strongly yesterday.  We just gave up most of it today and caught up with the rest of the region’s decline.

A significant feature in today’s trade was the 21 peso move of MER.  The stock opened at 154, traded up to 161, then plunged all the way to 140.  I think MER has some way to go before it hits its terra firma.  This is a stock that has been ramped and I wouldn’t dare touch it until it starts to trade normally.

I’ve been looking forward to this correction particularly because our market has not seen any meaningful correction since April.  I think this is healthy.  People should now have a long hard look at their stock positions and start re balancing for stocks with real value.  In other words, it is time to get rid of those stocks with ramped up prices and start looking for those that present fair value or better.  Remember that price does not always reflect value; sometimes stocks are overvalued and at times they are undervalued.  A consolidation is a good time to examine these relationships.

Personally, I think that the exuberance in the market which started in May is starting to subside.  We have brought the prices to expensive levels and it is but logical to sell.  My worry was that in the absence of periodic profit taking or value adjustments, we would just be taking the market to unsustainable levels.  This correction should bring us down to where investors will be convinced that stock prices are reasonable again.  In short, the market must open opportunity to other players to come in.

There was good news about OFW remittances which grew 2.2% for April to $1.44 billion.  Many forecasters had been expecting remittances to decline in 2009 and it has not happened yet.  With green shoots showing in the G8 economies, it is likely that the much anticipated contraction in OFW flows will not happen.  I think the economy will remain in pretty good shape.  That augurs well for earnings of listed stocks.

With the economic outlook looking pretty decent, even if we have a prolonged correction, i.e. many more down days in stock prices, I would train my sight on 2009 year-end.  I think that this correction could take a few weeks more just as the rally took more than a few weeks.  It is now time to be patient.  It is time to do homework after all, in every market, risk has its own reward.



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