First Metro Asset Management Inc

In local hands by Gus Cosio

3:50 pm  Tuesday 26 July 2011

When I posted an order on my online account at www.firstmetrosec.com.ph, I noticed that there was a new button -GTW.  I wondered what it was, so I called customer service.  I learned that it was a facility that I had been waiting for.  GTW apparently stands for “GOOD TILL WEEK” or your order will be on queue until it is filled for 7 trading days.  I was hoping for a good till cancelled facility; and lo and behold, it is now available.  Now, I can go out of town and leave my sell or buy orders at trigger prices.  This is wonderful particularly because I am going out of town this week to attend the ASEAN Stock Exchanges Networking Conference.

Yesterday, I read on Bloomberg News that Mark Mobius, executive chairman of Templeton Emerging Markets said that Philippine stocks are “relatively expensive.”  The country’s negative real interest rates are driving investments in equities.  The MSCI Emerging Markets Index has dropped 0.5 percent this year, trailing a 5.2 percent gain in the MSCI World Index of developed markets, as central banks from China to India raised interest rates to curb inflation.  Stocks in the index for emerging equities are valued at 10.9 times estimated profit, less than the multiple of 12.9 for developed countries.  “Most opportunities” in emerging markets are in Asia according to Mobius. Philippine stocks are “relatively” expensive, he said. “We’d like to put money in here if stocks were cheaper.”  The Philippine Stock Exchange Index has rallied 31 percent in the past 12 months, sending valuations to 14.8 times estimated profit, the highest level this year, according to data compiled by Bloomberg.

Anyway, if Templeton is looking to buy the Philippine market if it were cheaper, it tells me that there is indeed buying support below today’s levels.  My only problem with the statement of Mr. Mobius is that it is possible for a developing market to remain expensive just before it expands.  This was the phenomenon in Japan in the 70′s; Hong Kong, Taiwan, Malaysia, Singapore and Korea in the 80′s; China in the 90′s and India in the past decade.  The reason this happens is that most global funds focus mostly on the headline stocks which tend to be expensive.  There will always be stocks that are more expensive than the rest but that does not mean that they will not appreciate.  One classic example is ALI whose P/E had always been lofty.

Nevertheless, it is possible to find inexpensive stocks which have not yet been discovered by global investors – the unpolished jewels, so to speak.  One stock that comes to mind is VLL.  If you examine the it values, you will realize that for a property company with such a large land bank and extensive marketing network, its current price to book ratio of around 0.75X is such a bargain.  It is no wonder that even if the market was down today VLL went up.  I expect VLL to rise until its P/B reaches at least 1.0, which incidentally is still cheap.  You can expect the same of RLC.  Unfortunately, the stock is not quite liquid yet; but I reckon that when it reaches close to or around 14, you will see a burst of liquidity.

Of course, Mr. Mobius may not have much insight on the mining sector in this country.  I do not suppose that he is privy to the likes of MA, LC and ORE.  If there are any stocks that will drive our markets for the rest of this decade, it will be mining issues.  All you have to do is look at today’s performance.  These 3 stocks went counter to the move of many – MA preserved it price, LC gained a point, and ORE surged a lot.  I foresee more mining issues coming to play.  I discovered that there is a mine in Palawan that is already listed in Toronto.  Can you imagine what could happen to our market when the world realizes that the mineral resources in the Philippines can hold a candle to the big three – Australia, Canada and South Africa.

As serious players in this market, we can afford the likes of  Mr. Mobius to ignore Philippine stocks, however, we locals cannot.  We should be owning most of the resource based shares when the foreign funds discover how cheap they are because by then, the will start buying in a big way.  For our part, we will take our profits on them.

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First Metro Asset Management Inc