First Metro Asset Management Inc

BLOOD AND RAIN by Gus Cosio

9:30  Wednesday  26 May 2010 Philippine Stock Exchange Index  3115.34 (up 12 points at the open)

Bloodbaths have become common place over the last two weeks.  Ever since the big downward blip in New York which saw the DJIA drop a thousand points in one day.  Of course, it ended that infamous day with “only” a 348 point drop. What it has done, nevertheless,  is that it has set the mood for the market to question the long rally that had been going on from March 2009.  Of course the rally had its stumbling blocks when Dubai went into default and the first sign of the PIGS showed up in January this year.  Nevertheless, the market overcame those hurdles to take the DJIA to a high of 11,258 in late April.  Furthermore, as regulators investigate the “blip” on the 6th of May, people are realizing that it was not a blip after all;  it was more of a real sell-off which had recovered on its own.  Given the surrounding debt crisis which hovers around the markets today, I tend to believe that May 6 in New York was a major profit taking move by the behemoth portfolios trading in the dark pools of market liquidity.  These are enormous trade tickets that get executed in virtual private exchanges which eventually get mapped in the formal exchanges.

Anyway, what does this mean to us small boats floating in the ocean of global financial markets?  We will continue to rock.  The tide is ebbing lower as asset allocation towards equities are being parked in cash while the European debt crisis remains unresolved in investors minds.  I for one think that more drastic actions should be taken against the violators of the monetary union conditions.  Of course, we will likely drift towards a compromise acceptable to both weak and strong economies of Europe.  After all, as Alden W. Clausen, president of the World Bank who presided over the huge Latin American sovereign debt defaults of the 1980′s, said -” countries do not fail.”  I would add, certainly not a country with thousands of years of history such as Greece.

In the meantime, I expect that our market will be buffeted by the storm that is going on in the developed world.

Tuesday morning, it rained in many places around the National Capital Region.  After a long dry spell, that is a welcome relief.  It may also be ominous of what lies ahead.  Could it be that new life would be blown in by these rains?  I wouldn’t stake my life savings on it.  What I would be trying to recognize in a more vigilant manner are the basics that serve as sure foundations of the companies whose stocks I follow.  The rains, for one, should be beneficial for power companies who can now shift to hydro as soon as water levels of the dams rise.  While the technical picture for AP appears to have its trend reversed, I would wait for further confirmation of these technical indicators.  For that matter, MPI and DMC which are partners in Maynilad, should be getting some relief from fears that Maynilad would be threatened by prolonged water shortages.

MER, for one, went the opposite way of the market on announcement during its shareholders meeting that Manuel V. Pangilinan was appointed CEO.  This marks a new era for the power company whose revenue growth has been quite robust in the first four months of 2010.  I would keep a sharp eye on MER.

The Gokongwei companies have been doing very well and the share prices of JGS, RLC and URC have been very strong.  I think that they will remain strong although I foresee a trading range developing while the pall of sovereign debt in Europe hang over our market.

The markets in New York had tanked sharply in early trade this time due to a sabre rattling threat by North Korea.  The strong recovery towards the close indicates to me that traders are starting to cover their shorts.  It may be too early to call a reversal in sentiment, but all the blood may have been already spilled.

For our market, the key will always be value.  There are some stocks that continue to present excellent value.  To avoid criticism that I am promoting some stocks, I would leave the selection to the individual reader.  My call is that we could work our way up to 3200 level in the PSEi over the next few weeks.  It may take some time before bullishness flows again in our blood.  Perhaps, when we see more rains over the NCR, the relief from the long hot summer might liven our sentiments.

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First Metro Asset Management Inc