First Metro Asset Management Inc

LEVELS OF COMFORT by Gus Cosio

10:22 pm   Sunday  25 July 2010

Looking at how the global markets are behaving, it seems that the U.S. indices are all bumping up on their respective 200-day moving averages.  Ominously, the VIX is resting atop its 200-day.  In the next few days, we will likely see the direction as a tug of war between weak economic indicators and positive earnings surprises continues.  In the local market, a steady supply of earnings reports are already queued up.

Late Friday, EDC disclosed 1st half 2010 income of  Php 5.74 billion, up 113%.  Core income was Php 4.85 billion up 89.2%.  This is more than just recovery, this is a sure growth spurt which may overshadow planned redevelopment expenditures on newly acquired capacity.  EDC had been gathering support below 4.60 and this earnings report may just give the encouragement for the stock to start heading to its fair value of 5.60.

This week and next, MER, GLO, AEV and AP will be doing their 2Q analysts briefing so there should be some excitement coming.  Then, there will be the ongoing saga in the banking sector in spite of denials coming from the PNB president.  There would be at least some realignment due to the raised valuation levels that the second tier banks such as UBP, RCB and PNB are receiving.  If you recall, CHIB saw its price adjustment already just over a month ago.

With PNB and RCB having spiked up strongly last Friday, I think players will continue to be attracted to the game.  After all, PNB has to reach its full potential yet while RCB may be shrugging off its stigma of the last few years.  Nevertheless, when a story on a stock starts to emerge, lots of players are wont to place their bets, especially now that some momentum has come behind RCB.

UBP is one that cannot be likewise ignored.  It will be reporting earnings next week together with the AEV analysts briefing.  It is not unlikely that they report earnings surprises since the past quarter was a good one for treasury operations due to some volatility in the foreign exchange and debt capital markets.

The week will probably start slow as floor and on-line traders get used to the new trading system on the PSE.  Hopefully, most of the kinks have been fleshed out by trading participant during their rehearsals last Saturday.  I do not doubt that within hours, these guys will come to a level of comfort with the new system.

Of course a lot of ears will be trained on what President Aquino will be saying in his state of the nation address, but that will be trading hours are over.  I am confident that there will only be favorable policy announcement toward business and new enthusiasm should arise.  In the meantime, the best advise I could give is this: ask yourself if you would be willing buy the stocks in your portfolios again at tomorrow’s prices.  If your answer is yes, then you should remain comfortable with your positions.  If not, then do some top-slicing so as to money manage your position.  Remember, a good poker player makes money not because he is always holding a winning hand, but because he knows when to put money in or take it out of the table.  The same rule applies to stock market investing, except with stocks, the time horizon is longer.

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First Metro Asset Management Inc