First Metro Asset Management Inc

REWARDING THE DILIGENT by Gus Cosio

12:50 pm  Monday 19 July 2010  Philippine Stock Exchange Index 3,424.29 (-0.53%)

The pervading influence in the market today was the 261 point decline in the DJIA last Friday.  Both the S&P Asia and MSCI Asia indices are down close to 1%.  What is spooking many technical analysts are the lower highs and lower lows being seen in all the U.S. market indices – DJIA, S&P 500, NASDAQ and Russell 2000.  The consumer confidence survey’s preliminary July reading on the overall index dropped to 66.5 from 76.0 in June reflecting a very sharp reversal in sentiment after it reached its strongest level in nearly 2-1/2 years the previous month.

There were pretty good gainers in the local market led by PNB followed by SCC, BPI, MWC, AEV, VLL and AGI.  Surprisingly, one stock that has lagged the market for the last 15 years – RFM – has broken into the most active list as a gainer.  I do not know what’s going on in this stock, but surely there is something going on.

The question is always “where are we going?”  I think, except for PNB whose merger story is slowly unfolding and already taking hold, the broad market is not going anywhere.  From April to June, the PSEi tried to break convincingly past the 3300 level and was turned back four times.  The real convincing break was last week when the market tried to assault 3500.  Although we did not get there, I think most investors believe that this market remains in the upswing.  The only problem is the fear that the global markets will dampen local sentiments.

The idea is not surprising considering that in the U.S., in spite of higher than normal earnings surprises, investors tended to focus on the slowdown potential of the economy rather than the profitability of the companies.  I would be careful not to be skeptical because extreme sentiments are normally counter indicators.  Nevertheless, a trend has developed in the major markets, and it would be fatal for Philippine market watchers to ignore it.  Again, it will be a matter of picking the right horse since it most certainly not be a case of the tide rising.

I am still keeping my eye on DGTL.  The stock has been volatile and has been attracting a lot of negative criticism that I think the ground is being set for strong support for the stock.  If everybody was euphoric about this stock, then I would not be constructive.  At this point, I think investors are just rediscovering it and are gathering enough nerve to convince themselves that this time around, the Gokonweis will finally relase a pay-off for longsuffering DGTL investors.  With the long saga working out for a stock like PNB, I cannot see how it cannot for DGTL.

What I reallly would like to say is that while global trends may be trying to pull the local market down, it is still a matter of value.  Stocks that offer good fundamental promise will return rewards to the diligent investor.

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First Metro Asset Management Inc