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.