First Metro Asset Management Inc

Diversifying divergence, by Gus Cosio

4:30pm Tuesday 22 November 2011

Philippine stock investors should be pleased with today’s market behavior.  New York was down 248.85 points or 2.11 percent, but PSEi had gone down only 9.72 points today or a mere 0.23 percent. Nevertheless, at one point in the trading day the index tanked 39 points which makes the recovery at the close more dramatic.  Indeed local stocks have displayed not just resiliency but buoyancy as well.

Some stocks are just unsinkable; EDC, MPI, JFC, MER, SM, PX, MWC, SMC, AP, GLO SMDC, FGEN – these were all up today.  What is going on?  Why are we not getting beaten up like the developed markets?  Looking at the region, the KOSPI, Bangkok, Jakarta and Mumbai are also bucking the trend in the U.S. and Europe.  I guess there is till a lot of money sloshing around the world, and they are not in a hurry to go back to developed markets.  Ironically, trickles of cash have been finding their way to smaller markets such as the Philippines.

It looks to me like a global diversification is going onamong markets.  As I had said in the past, the economic center can no longer be found around the Atlantic.  Investors have to seek more ways of diversifying into emerging and even frontier markets.  That is likely to benefit us.

Yesterday, I shared a link which a reader picked up from Marketwatch about how the Philippines was overcoming recessionary forces coming from the west.  I think more people will be convinced of this as local companies present positive earnings outlook for the rest of the year and even into 2012.  I had always believed that our market could diverge from the U.S., an that is what is now going on.

Unfortunately, I missed a good run on LC and LCB.  I was waiting for LCB to trade below 1.30 but became too cautious when it dropped to 1.29 a couple of weeks back.  Now, it has gone way past my buying level.  Such is life.  I should have been more disciplined with my buying targets.  LC/B will be trading up and down for the coming years, and it is still a favorite.  I just have to find an entry point where I would be comfortable.

ORE has been languishing the past few days.  Fortunately, it bounced back a bit today.  I think that since we have seen good support just below 3.80, ORE might be a good trading buy at this point.  While NI dropped only briefly last Friday, I venture to say that the stock is poised to assault the 4.25 mark; and if it breaks 4.25, 4.50 should be reachable.  I recently read from a research note of one of the brokers that NI is benefitting from Indonesia’s recent ban on direct ore shippments.  There is also the possibility that they acquire majority of ORVI, the company that operates their production resulting in wider margins.
Anyway, while everybody out there is wary of a European contagion, there appears to be enough money around to fuel local stocks. Today, we see another day of net foreign buying which is already weeks of uninterrupted foreign funds inflows. As I said yesterday, there may be attractions in the market that we fail to see. I think it will be more profitable if we spot them before the foreigners start buying.

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First Metro Asset Management Inc