First Metro Asset Management Inc

YOU WERE ON MY MIND

9:40am  Wednesday  21 October 2009   Philippine Stock Exchange Index   2,943.63 ( a few minutes of opening)

When I woke up this morning, first thing I did after saying my morning prayers was to turn to the overnight market reports.  I had taken a look at the Dow before I went to bed and it was down 102 points to below 10,000.  Apparently, U.S. housing starts which the market anticipated to be 610,000 turned out at 590,000 only reflecting the sluggishness of consumer spending.   New building permits, which give a sense of future home construction, unexpectedly fell 1.2 percent to an annual pace of 573,000 units in September.  I was pleasantly surprised that the Dow was down only 50 points at the close.  Investors had given weight to a U.S. Labor Department report that producer prices dropped an unexpected 0.6 percent in September.  Analysts had anticipated prices would remain unchanged after rising 1.7 percent in August.  To the market, weak producer prices signals that deflation and not inflation is what the FED will be addressing.  Interest rates are not likely to move up anytime soon.

Locally, the situation remains similar.  In spite of rising government deficits exacerbated further by the recent calamities, bond yields do not look like they are going out of control.  In yesterday’s 10 year bond auction, the Treasury rejected all bids as dealers backed up their yields to 8.375 for the new paper.  With enough money from its recent domestic and international fund raising, the BTr has enough room to dictate for lower cost of borrowing.    All told, interest rates will likely remain at these levels and perhaps even ease further due to the strong trending peso.

In the equity market, it looks to me that the institutions are increasing their exposure to the equity markets.  Most of the large cap shares traded with very good volume.  One of our readers pointed out that the top 12 most active each had value turnover of above Php 100 million which signifies more cash being put to work in stocks.  Earnings season is here and initial guidance for the largest cap stocks is that most will come within expectations.

As my morning went on, I started to ask myself that if I just came to the market today, would I be buying up for my portfolio or would I wait.  My answer was YES, I would do selective buying.  For one, I think ALI is a very good trade today.  With a lot of developers in trouble because their properties had been damaged by the recent floods, premium is being put on ALI developments which are all in higher ground and likely to be in conformity with all environmental standards and regulations.  I think the same can be said of RLC and MEG whose developments are mostly high rises close to commercial areas.  RLC even has their malls which unlike SMPH had not been affected by floods.  BPI while expensive has broken out of its rainged and has likely been rerated upwards by fund managers.  TEL while closing a little easier in New York is looking very much poised to move back to its year 2007 level of around 2800.

I can go down the line with some of the banks – SECB, MBT and PNB – because judging from the amount of corporate fund raising that has happened this year, high quality earnings had been injected into these banks revenue producing portfolios.  Consumer stocks URC, GMAP, SPH, PIP and even AGI are not at all expensive in my estimation.

A foreign house had mentioned in their latest ASEAN equity market strategy that “…the Philippines and Malaysia are now not just defensive but also sorely under-owned.”  My impression of this statement is that our market can hold its current levels because it is not overbought and institutional investors have a lot of room in their portfolios for stocks.  So while the six month gain has been superlative, it is still possible to do better.

So, do I think it is a good time to buy?  You tell me.

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First Metro Asset Management Inc