First Metro Asset Management Inc

A THIRD QUARTER CHALLENGE by Gus Cosio

7:30 pm  Thursday  1 July 2010   Philippine Stock Exchange Index  3315.26 (-1.703%)

After being away for a day, our market woke up to a total decline in Wall Street of 369 points or 3.63%.  That was after the DJIA had fallen12.9% from its peak in April and 6.3% from the beginning of the year.  We could not help but feel bearish in spite of yesterday’s presidential inauguration euphoria.

A few things are bothering the market, notably the global growth prospects.  For one, China’s manufacturing growth slowed as the Purchasing Managers’ Index fell to a lower-than-expected 52.1 in June from 53.9 in May.  A reading of above 50 signals expansion.  Bad news in Europe came in the form of Moody’s Investors Service saying that it may cut Spain’s AAA credit rating.  If you ask me, seeing that the credit spread of Spain widening to around 180 basis points over German Bunds  , investors have priced the downgrade into the market way ahead of the rating agencies.

Locally, even if the market had gone down, I don’t feel too worried yet as my favorite stocks do not look so bad.   For instance, DMC looks to be well supported at 17, even closing at 17.25.  If you were waiting to buy AP today below 18, it appeared to be a tall order as  strong demand came out at 18, and it closed at 18.25.  Even AEV at 19.50 is looking formidable with a close at 20.

I was even hoping for EDC to break 4.50 so I can get it cheaper, but hope is all I’m seeing at this point as demand crawled out of the woodwork at 4.55.  AGI could have  been trending toward 5, but willing buyers had stepped up at 5.30.  MER may have moved up over the past few weeks and is holding its own at 184.  If this stock moves down some more, I would not be surprised if we see bargain hunters taking a lot of positions in.

Traders have been trying to beat TEL  down again, but  2370 looks to be holding.   For all you nervous holders of DGTL, if today’s extremely weak opening cannot put DGTL into the tank, then the intrinsic demand for this stock may just be a lot deeper than we think.  I suspect special situation buyers will continue to take this stock in while waiting to confirm its recovery.  Its parent, JGS at 16 looks to be attracting good buyers.  Among financials, MBT buyers appear to have dug the trench at 60 while PNB supporters seem unfazed at 29.50.

Am I sounding bullish; not really, let’s say that I’m just observant.  I do not see a rally yet in the horizon, but negative sentiment does not seem to have taken hold in the domestic market yet.  Personally, I think the third quarter, which we are just entering, is going to be a bigger challenge than the quarter just past.  Money flows are normally tighter in the third quarter and investors really become very edgy.  But then again, if domestic fundamentals remain strong, this should just be a hiccup in our march to higher levels.

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First Metro Asset Management Inc