TIME TO TAKE STOCK by Gus Cosio
First of all, i would like to tell all of you that for reasons unknown to me, I could not post on this site. I could only access the comment box where most of you post your comments. Anyway, I am happy that I can share things again today.
First of all, there are very few players in the local market who are not as pleased as I am that the PSEi has broken its all time high. We are now trading in uncharted territory. That is not to say that I am no longer bullish in the local market. Far from it.
I continue to stress that investors should prepare to increase equity exposure even more, now that we are breaking new ground. It has become to be a new ball game for the PSE which I feel has graduated into a bigger league. Let us look at it from the top going down.
What are the fundamentals, macroeconomics-wise?
1. We have a much bigger economy now than what we had in 2007 when we posted the previous high. Remember that the Philippine economy did not go into recession. It only slowed down and that is the reason why locally listed companies did not have to face any capital erosion. In fact, cash balances of Philippine companies remain high.
2. We have more money on hand today than in 2007. If you remember the SDA level with the BSP in 2007, it was roughly around Php 500 billion. Today, it is pushing Php 1 trillion. People have been extremely cautious with their cash and only a few have managed to put it to real work – as in the stock market.
3. Companies have better bottom lines today than 2007. We have been seeing corporate earnings rise by 10 to 15 percent. Power and utilities companies have been experiencing even stronger growth. So have some consumer shares.
4. We have a better political and business climate than we had in 2007. Remember that they were still looking to impeach GMA that year except many proponents already gave up. They, however, went for investigations such as the NBN deal and the fertilizer scam among others. Today, in spite of the set-back brought about by the August 23 hostage crisis, there is still a lot of political capital in the hands of Noynoy Aquino. There is a lot of business enthusiasm from both domestic and foreign sources.
5. More investors from outside the country are looking to allocate investments to Philippine stocks today than there were in 2007. If you look at the TIP (Thailand, Indonesia, Philippines) theme, the almost identical performance of the three markets gives us an early indication of how global capital is moving.
6. More locals are getting involved today than in 2007. Due to heavy losses taken by wealthy investors during the sub-prime crisis, Filipinos have realized that investing abroad is not a sure-fire strategy anymore because one has very little control of investment decisions. In contrast, if you play with your money domestically, it is easy to cut losses before they run your portfolio to the ground like the foreign fund managers did to them in 2008.
7. The outlook going forward is better today than it was in 2007. We have had 2 quarters of growth and while the world is wary of a second dip in the global economy, this in 2007, the crash was imminent. This was because there were asset bubbles everywhere – US, Europe, China, hard commodities, soft commodities. even crude oil was headed for ear-piercing levels in late 2007 going into 2008 when it peaked at $150 a barrel. Today, asset prices are low but are already at rock bottom in as far as property prices are concerned in the developed world. Even property prices in China have eased a bit. Oil is having a hard time breaking above $80.
What I would like to say is that things are different today tan what it was in 2007. At that time TEL was above 3000 and GLO was above 1100. Today, TEL is only 2400 in spite of a core bottom line 15% higher than it was in 2007. Even AC was above 500 then and ALI over 20. What has happened is that the market has diversified in stock allocation because there is more to choose from today that 3 years ago.
Now tell me, is that not good for stocks as a whole.
MANIPULATING PHILIPPINE GDP by Gus Cosio
10:20 Wednesday 1 September 2010
There have been some comments questioning the integrity of GDP numbers released by the government. I know that these figures are generated from statistics gathered by the National Census and Statistics Board. A few years back, I am not sure whether it was the World Bank, the IMF or the ADB or all of them cited the National Census and statistics Bureau for their good work in providing the government with the National Accounts at a timely pace and with good quality.
My own assessment of the situation is this: Will it benefit the government to manipulate the data? The answer is no. Whether the numbers are good or not, people will react negatively or positively if there is trust in the sitting administration. During the past administration, the economy was doing very well – a fact that was verified by the strong earnings of companies that profit from a robust economy. These are telcos, power generators and distributors, real estate firms, banks, consumer goods, retailers, exporters, hotels, you name it. These figures are meant to help business decisions and not merely to give adulation to government. At the end of the day, it is what is in people’s wallets that confirms to them that the GDP figures are true or not; and this can be judged from the amount of money people are spending from the wet markets, the 168 Mall in Divisoria, the SM and Robinson’s Malls and all these commercial hubs that have mushroomed around the country.
Anyway, from where I am sitting, I can see an economy that is growing fueled by strong consumer spending in metropolitan areas where much of the jobs are. In the NCR, much of spending is fueled by BPO workers as well as the retail establishments that surround them. The same goes on in Cebu and activity is even supported by strong tourism traffic. In Davao, you can literally say that their local economy is going bananas as China is now importing 85% of their banana consumption from the Philippines.
Of course we will be vulnerable to any global economic slowdown and most businesses are prepared for that possibility already since everybody has been talking about it for a few months now. What surprises me is the strong price surges in hard commodities such as gold, silver, copper, nickel and iron ore. Yesterday, I saw on Bloomberg Television that Australia’s coal and iron ore exports are surging again. If that is happening, then some country or a group of countries are buying; and if they are buying, that means they are using these commodities. That to me signals economic activity.
The recent hard commodity spike is what has caused mining stocks like PX and AT to surge lately. I think in the next few days, we will see more movements in mining shares including the speculative ones like ORE, CPM and GEO. Even if enthusiasm cools down a bit on some of the market’s favorites, the rotation into mining stocks could keep trading interest going.
OUR BLUNDERING OFFICIALS! by Gus Cosio
11:30pm Monday 30 August 2010
One good thing about being away from the market for a few days is that you are able to stand back and have a long hard look at what’s been happening. I think the highlight last week was the hostage blunder which broadcasted to the whole world the incompetence of our law enforcement personnel, the ineptness of the local government of the city of Manila and the general lack of perspective of the national leadership. It is not for me to belabor what those guys have done; but one thing is for sure, they bungled it up for the whole country.
What I can see down the road is a slowdown in tourism because let’s face it, tourists will not risk something like this happening to them. My suggestion is for tour operators to stop bringing tourists to Manila and try to attract them to many other more interesting places. In my opinion, Manila is a dump and so are the cities that surround it. Places like Cebu, Bohol, Laoag, Puerto Princesa and Dumaguete, to name a few would provide better environment and ambiance.
Anyway, having been detached from the market for a few days, these are my thoughts.
1. The US market looks like it is not going to rally further after the recent round of earnings report because everybody is focusing on the economy. The revised 2QGDP growth in the US only serves as a grim reminder that everything is slowing down again so there is no rush to buy stocks.
2. The threat to the global market is not as heavy as it is to the US economy. In Europe, Germany continues to assume the role of growth engine and France, though not as strong, is not lagging far behind. The Greek economy is only twice the size of the Philippines, so it will not create any tremendous impact. China has managed to restrain any possible real estate bubble and is growing domestically. India may be having to rein down inflation and could end up growing at a slower pace. Southeast Asia with Indonesia, Thailand and the Philippines are on a sure growth path.
3. Unfortunately, the DJIA and the S&P 500 continue to be the bell weather for the global equity markets.
4. The Philippine market is at a crossroads where many portfolios are seeing huge profits which are very tempting to take. With psychology slightly negative, it may not matter what the fundamentals are in the short run. Psychology will prevail.
I would like to remind each and everyone who dabbles in the stock market that there will be ups and downs. Sometimes the swings are narrow, but in critical times, they are wide. That is why money management is very important, and I have always made a point that there should always be 10 to 20 percent cash available. That means if you will put more cash into the market because you want to add a new stock in your position, you should either cut positions on weak stocks or top slice (take some profits) so that there is cash again in the portfolio.
There have been concerns expressed about DGTL. I mentioned in the past that this is a recovery stock. DGTL is a stock that has languished for 10 years and is only coming back now. No wonder Telia of Scandinavia got fed up with the stock and has gotten out. I do not know how big their position is, but no matter how large it is in local terms, it is something that they’ve made provisions for already. They can absorb whatever loss they are taking. The real question in my mind is whether or not the business of DGTL will continue to do better, and the recent trend in market share of the telecom industry tells me it will.
I am not going to convince people to hold on to this stock. My suggestion is that if you cannot live with prices going down, sell it immediately. No use losing sleep over it. For those who have the holding power, I’d likely wait for it to come closer to 1.20 and perhaps double my position. I see a company that is committed to building its business. The other telcos (Bayantel, Extelcom, Liberty) have just stuck to their niches probably waiting to be bought by the bigger players. DGTL poured new money to get to where they are now. Tell me, does that sound like a company that is not seriously trying to be a serious big player? PLDT makes over Php 40 billion a year and Globe in the neighborhood of Php 20 billion. DGTL will likely make Php 300 million this year; do you think there is a chance that this could go up to Php 3 billion next year? You tell me.
For the other stocks, perhaps we could discuss them as the week wears on. In the meantime, I think that people should be reducing stock exposures and raising cash for the time being. There might be rough sailing ahead.
