9:40 Thursday 29 April 2010 Philippine Stock Exchange Index 3299.42 (up 14.64 points from Wednesday close)
After the volatility over the past two days, perhaps the local market will attempt to stall the up trend that we have had since February. There are very strong stocks out there that have been impervious to the shock that the global markets got from the credit downgrade of Portugal and Greece. The major markets were whacked by the downgrade supported by the Goldman Sachs sideshow. Investors got worried that attention would be taken away from the strong earnings report from 79% of S&P companies that have exceeded analyst expectations on their 2010 first quarter earnings.
It is not surprising that people should pocket some profits when signs of trouble arise. The market’s view of the value of prices is a process of never-ending change. The differences of opinions expressed by investors through their buying and selling activity is what results to a collective wisdom of the market place. It is not so much that there are forecasts and views given by personalities such as Nouriel Roubini or Marc Faber. It may not even be the influence of astute investors such as George Soros or Warren Buffet. At the end of the day, there is only so much that these market movers can do. The final arbiter of stock prices is what the breadth of investors decide to pay for them. It is dependent on how people vote stocks with their money.
Locally, investors have been convinced that the place to squeeze out returns is the stock market and that is why local money has been strongly engaged in stocks. Even if you stick it out with just one stock, you would have done much better that keeping it in any government fixed income bond or time deposits in the banks. Some examples are AEV, AP, DMC, MBT and PNB, just to name a few. If you held these stocks from the beginning of the year, each of these stocks would have returned at least 20% regardless of how the global markets behaved.
Going back to the very influential U.S. market, many analysts believe that earnings of the S&P component stocks would be growing by 29% this year. It is no surprising then that with every major sell-off that happens, a comfortable base in prices is built. We saw this when the first news of Greece and the rest of the European PIIGS broke out in the latter half of January this year when stock prices slid until the middle of February. But what did we see after? Was it not a sustained rally until the second wave of bad news about Greece and the problematic Portugal broke out again. This gave investors reason to consolidate their gains by cashing in on some stocks.
The question that remains is whether or not to abandon this market or at least dramatically decrease exposure. My opinion and my money are of the view that we will remain engaged. I see a lot of value remaining in stocks like TEL, FGEN, PX, and MER at present prices. That is not to say that the other stocks should be ignored. I just think that from yesterday’s price action, these stocks are looking like bargains today. For stocks like MBT, URC, RLC and PNB, I think the trend is still intact. i just see them moving sideways in the near-term. Two stocks that look to be steaming ahead above the sum of all fears are DMC and PIP; there is probably something going on in these stocks.
Anyway, yesterday, I thought that the bloodbath on Wall Street would result in similar hemorrhaging here, but it did not. I do not think that local investors were like ostriches burying their heads in the sand. I think they were pretty clever coming to the conclusion that stocks are still the place to be.
10:00 am Monday 19 April 2010 Philippine Stock Exchange Index 3208.05 ( down 61 points from Friday close)
The 125 point drop in the Dow is what I think is a classic example of buy on expectations and sell on news. A large number of investors had been expecting better than expected results from the blue chip companies that normally report ahead of the less followed stocks. Companies like Alcoa, J.P. Morgan, UPS, GE, BofA, the early results were above expectations. So why did the market sell off because of the news of a Goldman Sachs scandal? For one, Goldman’s are a very powerful force in Wall Street. It influences a lot of fund managers through its sales and trading of stocks and bonds. It also directly moves the market through the firm’s proprietary trading positions and the various hedge funds that it either owns or sponsors. Bottom line, what I see is the market looking to bank some profits before going into the next profit cycle.
In our local market, We have been seeing some profit taking as well. On last Thursday’s trade, we saw a bit of selling which took the index down 21 points. This was followed by another wave of selling taking out another 13 points off the index. Actually, we should not ignore the price actions the days prior to this decline. On Monday last week, we had a very strong rally which took the index 38 points higher. However, on Tuesday and Wednesday, the PSEi got stuck at 3299 – a foreboding sign that buyers are being reluctant to commit at those levels. Anyway, our market saw profit taking ahead of Wall street for our own reasons. Nevertheless, I do not think that local investors are impervious to what is going on in the major markets. Asian markets have started to slump due to the anxiety brought about by Goldman’s facing U.S. SEC indictment and ongoing probes in Europe. Remember that a few weeks ago, Greece revealed that Goldman’s had engineered financial products for the country to disguise its digression from the standards imposed on the members of the Euro – the common currency of member European nations. Something like this could be very disruptive to the markets. Furthermore, it tends to make investors suspicious of the recommendations they receive from their investment advisers. Trading desks all over the world likewise will be taking a defensive posture which will tend to contract value turnover all over the world.
Short-term, this looks bearish for the big picture. For the domestic picture, things have not changed much is as far as company fundamentals are concerned as well as for the underlying macroeconomic fundamentals. The political picture has also not changed but because of recent global market events, there will be reason to provide more focus to the election factor. Until today, investors have been comfortable that elections will go smoothly despite the various hoopla brought forward by many devil’s advocates in this country. Personally, many of our countrymen appear to prefer the company of devils that the only position they wish to take on national issues is that of the devil’s. At the end of the day, our country has had a good history of resolving political issues peacefully. It just takes time. So whether the various election scenarios play out, there will be a Philippine economy chugging along after May 10 and life and markets will go on.
In the meantime, I would advise careful following of strong stocks. Remember that our economy will continue to hunger for electricity and power so keep an eye on your favorite power producers or distributors – AEV, AP, FGEN, EDC, MER, DMC and SCC. Watch out for the banks as well because some are looking stronger than ever – MBT is one and PNB is another I continue to like. It is helpful to remember also that you should enter at levels where you can handle the volatility. There is no sense putting out money then losing sleep over it.
I think that the fact that markets are consolidating – no matter the reason – is constructive. At the end of the day, in a situation like this, we all win.
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.
5 April 2010
We are pleased to release the March issue of The Market Call, as published by the FMIC & UA&P Capital Markets Research. This is a result of an in-depth analysis on the emerging and leading trends in the global and local markets that have shaped the direction of the Philippine capital markets in the last four weeks.
Here are the highlights of the March issue:
The outlook for the economy is looking better for the first half of the year. January 2010’s record gains in electricity sales and employment are reflecting the rebound in exports and the renewed strength of construction spending. Despite elevated crude oil prices, their upward trend has weakened, and further pressures on domestic inflation are limited. We think inflation would range from 4.2% to 4.8% in Q2. Moreover, exports are expected to continue being in a strong recovery mode as the US and East Asia have rebounded impressively. OFW remittances are also likely to grow between 8-10% for Q2.
Interest rates will remain stable in the second quarter with very little threat from inflation and a strong peso. With cash positions of banks and investors remaining very high, there appears very little threat that the curve will sharply steepen. Indeed, a moderate flattening is already beginning to emerge. ROPs will most likely narrow its trading range but could move up if euro-zone debt problem escalates.
The El Niño continues to put pressure on growth, while rotating power disruptions may likely curtail company earnings. Even so, heavy election spending compounded with accommodative monetary policy will likely keep local equities afloat. We expect pullbacks to proliferate due to the increase in volatility and uncertainties surrounding the election.
For full details of The Market Call, please click http://www.firstmetro.com.ph/Market%20Call/TMC%20March%202010.pdf.
Roberto Juanchito T. Dispo
Chairman, Capital Markets Development Committee
First Metro Investment Corporation
45/F GT Tower International,
Ayala Ave. cor. HV Dela Costa St.,
Tel: (+632) 858 7900
Fax: (+632) 816 0984