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6:10pm  Monday  12 July 2010   Philippine Stock Exchange Index 3406.96 (+0.37%)

Paul, the octopus, successfully predicted the outcome of the FIFA World Cup – a victory for Spain!  Apparently, the prophetic mollusk has an inherent predictive talent that allows it to foretell the future in football matches.  I’d like to get my hands on this celebrated octopus and find out if it can presage the movement of stock prices.  If this famous dweller of the deep manages to guess the direction of the index even on a week to week basis, would you put your money on his predictions?

Anyway, the reason that I haven’t been posting is because I got involved in some corporate social responsibility (CSR) projects and then I had to go to Baguio to give an investors briefing to investors in the city of pines.  My feedback was that they were quite appreciative because they needed someone to give them deeper insight into what they read in the business news.  It seems that if they can get better information on what going on in the economy and what listed companies are doing, they are more than willing to allocate some of their assets into equities.  I found the feedback from the audience very fulfilling and plan to do a follow-up in around two months time.

As far as the market is concerned, while I am pleased that the global markets have recovered, I’m still not one who would plunge into the deep end just yet.  Yes, I like the market.  Yes, a number of headline Philippine stocks are still cheap.  Yet, common sense, or shall we say market sense, tells me that we cannot load the bases yet and hit for the home-run.  For stock prices in the Philippines to forge farther than it already has, a global heavyweight must re-rate our market into a strong buy.  Such a rating has yet to be seen.

When prices have gone up so much, even when stock prices are relatively cheap, you must not fail to ask yourself who you think will the next buyers would be.  In short, if you buy a stock now, you must not only be convinced that it is cheap, you must also establish that at the point you will be willing to sell, some other buyers will still be thinking that the same stock is still cheap.  Otherwise, it will be as if everyone is rushing out the door at the same time; people usually get hurt in the rush.

I would be very selective now in buying stocks and will likely avoid the big winners year to date, such as AP and AEV.  While they are still relatively cheap, I think many are being tempted to take profits.  It may also be compelling for holders of DMC and SCC to take profits at this point, so I would think twice about adding positions in these stocks at these prices.  I would feel the same way about SMDC which has been the stellar performer among the Henry Sy stocks.  URC is another outperformer that is temporarily running its course.  I sense a bit of reluctance from people to take this market higher at this point in time because they are being careful not to drive the market into expensive levels before a strong base of buyers emerge.

Since I am being selective, I feel very comfortable picking up PNB at this point despite criticisms that the BIR might be going after Lucio Tan.  I maintain the view that if Mr. Tan is forced to sell PNB due to tax problems, there will be a lot of buyers queuing up for the auction.  Today’s volume spike following the slowly rising volume of the past two trading days tells me that something is afoot.  We may not be hitting 40 yet, but we will slowly get there.

I haven’t turned bearish, but I think I would like to give the market a rest.  I believe that we need another pull-back to build a stronger base for a follow through rally.  At that point, I believe we shall see the continuation of the rally.  We can even get Paul, the octopus, to do the predicting for us.

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