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12:00 noon  Tuesday  5 July 2011

We had never seen the market this strong for a long time.  What we are experiencing is a breakout in the index.  Ironically, there was no immediate reason for the rally except a one week winning streak in wall street.  It comes at a time when risk anxieties in developed markets remain lofty although muted because of the austerity commitment by the Greek parliament.  I can only surmise that local institution and a handful of local institutions have become more comfortable with the local market despite the international concerns.

I am quite positive on the market prospects, but my outlook is for the end of the year.  I must admit that I was surprised to see the market as strong as it had been over the past few days.  As I write, I am seeing a consolidation of the day’s strong rise.  I am not sure if people will continue to sell into this rally, but my take is that strong players have already established their newly balanced core portfolios in anticipation of a further rise in the market during the second half of 2011.  There is reason to be constructive particularly because the slow first half economic growth was a result of the government spending very little.  In the second semester of 2011, they have no choice but to spend a lot more and they have enough room because the forecasted budget deficit is around Php 300 billion.  As it remains, the year to date deficit is only around Php 60 billion leaving the government well over Php 200 billion more to deficit spend in the second half.

Of course, that does not even take into account the strength of the mining sector.  Even as there is a slight easing in the price of gold as well as some of the base metals, I think a lot of commodity traders are convinced that metals prices remain on an upswing, and what we are seeing is a mere consolidation. Inevtiably, we will see more accumulation of mining stocks from AT, PX, LC/B, MA/B, SCC and even the less wanted ones like ORE.  At this point, I cannot argue against proven mineral resources as well as profitable mining operations which all of these stocks have.

I would also like to point out that the banks have been doing well, and it is only now that this is being reflected in their prices.  To be on the safe side, I would keep to the big three – MBT, BDO and BPI.  I am certain of their profitability and valuations.  Of course second line banks like UBP and SEC are always worth a second look especially if an investor can tackle sporadic shifts in liquidity.  I am also quite bullish on holding companies seeing AC, DMC, SM and MPI performing so creditably in the past few days.  Likewise, I am having my change in sentiment for SMC as more participants take greater positions in this stock bolstering its liquidity.

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