First Metro Asset Management Inc

TILL THE FAT LADY SINGS by Gus Cosio

7:10 pm  Tuesday  8 June 2010  Philippine Stock Exchange Index  3274.26 ( +0.25%)

In spite of the two-day drop in New York, local stocks did not see similar negative sentiments from local investors.  It is not unusual because the fundamentals underlying local stocks have remained strong.  Take MER for instance.  Electricity sales of MER are expected to pick up even further in the second quarter in the back of an already strong 14% increase in the first quarter this year.  The thing about Meralco sales is it foreshadows the strength in other sectors of the economy.  In 1Q10, it was the industrial users that buoyed electricity sales implying that businesses are humming quite well.  The coming of the rains bodes even better for agricultural production which contracted in the first quarter.  Strong agricultural production raises consumer spending in the countryside.

Observe that you have very strong demand for stocks like DMC, EDC, and MER due to the strength of the power sector.  You also have follow through support for stocks like JGS, DGTL and URC.  This is further strengthened by obvious buying support for SM, SMPH and SMDC.  The foreign houses seem to be accumulating even TEL which has been a laggard simply because it is a surrogate for the broad market for the larger foreign funds.

Perhaps, the bounce in the local market can be attributed to pronouncements by U.S. Fed Chairman Bernanke that the growth in the U.S. is still on track.  I for one think that the U.S. market is oversold and could see a slow and gradual climb from these levels in the coming days.  While Philippine stocks are not generally oversold, I can sense positive sentiment from investors following our domestic market.  As I mentioned a few days back, institutional investors will find it difficult to ignore the 7.3% growth shown by the Philippine economy last quarter.  Even the magazine The Economist, which does not usually write articles on the Philippines started to highlight the economic gains that we saw last quarter.

In the next few days, we will still see volatility because there are no assurances being seen in the global markets for a steady recovery from the European debt crisis.  I will not hold my breath for that to happen because things will not change overnight.  One thing that I am certain about is that our economy’s dependence on Europe is very small.  Most of our exports – 42% – go to East Asia (ex-Japan) and 34% go to Japan and the U.S.  Whatever nervousness in the major market, to my mind, only strengthens the case for local investors to make their money work for them in the domestic market.

With domestic inflation remaining within the central bank’s target, the latest being 4.3%, the prospects of interest rates moving significantly higher is just not there.  Investors who want return have to come to the equities market in a big way to reap yields to their portfolio.  I think we have a lot more to squeeze in this market.

I would still keep an eye on stocks like PNB, PX, EDC, MBT, DMC, AP, SCC, AGI and URC, to name a few.  I would not abandon equities at this point but use these dips to add to positions.  The show is not over until the fat lady sings.

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First Metro Asset Management Inc