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1:40pm  Thursday  12 November 2009  Philippine Stock Exchange Index  3073.93  (+0.88%)

Looking at what’s going on in markets worldwide, it is not surprising that we’re on a roll.  My view of U.S. stocks, for instance, is not as negative as what a lot of analysts think.  The view from many New York technicians is that there should be a much awaited correction.  This outlook arises from nothing more than an argument that because the S&P 500 is up around 60% from its March lows, then it should come down a bit.  Unfortunately, I do not share that view.  While I believe that no market just goes only one way, there should be fundamental reasons why rallies should reverse directions.  The earnings of 3Q09 in the U.S. and elsewhere had many positive surprises on account of the companies having derived a large proportion of their income from outside the U.S.  The consensus expectation for 4Q09 earnings is even better and would likely reflect positive earnings growth from 4Q08.  I think that investors should really be taking a global perspective.

From a strategic allocation perspective, it does not really make much sense to be holding a lot of cash or fixed income in the Philippines or the U.S. where interest rates are at historic lows.  There is so much compulsion for investors to really scour the horizon for good stocks even just to punt at these stocks.  All the more when it comes to stable and asset rich stocks like AC, ALI, TEL, and yes, even MER in spite of the extreme volatility seen in this stock.  The local blue chips will surely see better days in 2010 particularly because it is an election year.  Analysts are always overly cautious of election years for stock because of what they perceive a wave of uncertainty.  For sure, there will be volatility going forward; but another perspective of volatility is that it oftentimes brings the price of your favorite stocks back oto affordable levels.

Should we be getting nervous that we’ve had 3 days of price increases.  Why should we?  Are the big movers going to tank, meaning MER, PX or even TEL.  I don’t know about PX because mining stocks are very difficult to analyze, but MER – I think that this stock will eventually be rated higher by analysts because it’s earning will grow consistently and if the price comes lower, the M&A buyers will be on the prowl again.  TEL, and even GLO for that matter, will be seeing higher usage of both voice and data service in 2010 as consumer spending rises.  For stocks like AC, ALI, SM, SMPH, URC and RLC, these stocks will likely see highe values for their assets as domestic economic recovery takes hold in the opening months of 2010.  We will likely have the higher asset allocation to Asia and Emerging markets by the traditional fund managers as this remains to be a global theme.  I am also of the belief that because many investors are still allergic to leveraged plays; rather than going for structured products as investments, they will prefer to go to cash markets like the equity market.

The small caps have been phenomenal and may entice some buyers but when it comes to extreme price actions, please be careful not to be sucked in purely on momentum.  Be sure that there are solid fundamentals supporting the move or at least the prospects for the stocks growth is discernable.  For example, I like ISM and traded a few weeks back; but now that it is trading at .0625, I’d be very careful.  Stocks like SPH and AGI surely have solid fundamentals.  If these stocks are showing signs that they are being pushed, I take comfort in the fact that the underlying values in the stocks are real and defensible.  The same is probably true of PIP and Tuna.  There was a recent move in ACR which no one can yet explain.  I’m not one to jump into hasty conclusions but I wouldn’t be as impulsive in risking good money simply because the stock is moving.  I’m going to look deeper though because one should not shrug off opportunities.

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