First Metro Asset Management Inc

Awaiting GDP

8:41 am Monday 23 April 2012

I have no doubt that the Philippine stock market will continue its bullish trend. For one, the latest power sales figures from Meralco was significantly higher in 1Q-2012. Likewise, exports growth picked up in February to grow 14.6% and manufacturing output was up 5.1% in the same month. While many economists are hedging their Philippine GDP growth forecasts, I am optimistic that the figure will surprise even the brightest expectations because the numbers already available to us should add up to a more robust economy.

This is probably why Philippine stocks were very strong in the first few months of the year. Investors are usually forward looking and many have already placed their bets on a rosy economic picture for the country. I will not argue with that idea. My only concern is whether or not all these expectations have already been priced in the market, i.e. are stocks in general presenting over valuation.
In general, the Philippine market can be regarded as having gone to lofty levels. In particular, stocks like AC, JGS, SM, ICT, JFC and AEV among the conglomerates are pretty much on the expensive side. However, there are stocks that are gems that have not yet reached full potential such as DMC, MPI, PCOR, MER, PGOLD and SMDC.

So what we have is an index that makes stocks appear fully valued but we can still scour the market for those that have not met their potential. Among the stocks that yet have to achieve fair valuations are the mining stocks. A lot of people are being left anxious because of the executive order (E.O.) on mining which ius pending in Malacanang. It would surprise people to note that most of the mining companies are not worried because they are prepared to comply with the rules. I believe that the important players in the industry are above board in their activities. There is enough profit to be made and all they have to do is operate responsibly, and the majority are in fact geared up for whatever the government requires. On the government’s side, I do not think they would want to kill the industry. Mining represents the future accumulation of capital for the country and the government recognizes this. It is just that we have extremist from the environment movements who merely want to push their agenda.

Anyway, I think we ought not to be complacent as we are approaching a seasonally bumpy stretch along the road. In the last five years, the period from the last week of April into the month of May has usually been tricky. I would stick to my high conviction stock for this period among which would be GTCAP in the anticipation that 1Q-2012 GDP would be favorable; and a cheap conglomerate stock should be the choice of many.

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First Metro Asset Management Inc