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2:30 pm  Monday  25 July 2011

I imagine that a lot of nervousness hovered above Philippine stocks when we opened this morning.  Surely, having broken out of 4320 previous high of the PSEi in early July and again seeing strong support last week at 4350, there must be a lot of bullishness out there.  Following from a very credible wave of net foreign buying, over the past 2 weeks, there must be some inner confidence left in the sentiments of local traders and investors.

Today’s price action somewhat affirms that indeed there is divergence with other markets.  Earlier today, all stock markets in the Asia Pacific region were down.  The MSCI Asia Pacific Index fell 1.1 percent at 2:15 p.m. in Tokyo and Standard & Poor’s 500 Index futures slipped 1.1 percent.  Equity markets Hong Kong, China, Japan and Australia were all down weighed by fears of default by the U.S.  Many are anticipating a credit downgrade of the mighty American economy.  The fear is real and worthwhile taking note of.  Why then did the local index rise by 2.14 points?  Why are we diverging from the rest? (Later during the day, Bombay and Bangkok were also up slightly.)

I guess domestic optimism remains high while being supported by low fixed income yields all over.  It is only in Greece and in Ireland where you can get double digit fixed income returns.  Unfortunately, no one is rushing to buy their paper, not even wealthy fixed income fixated Filipinos.  Ironically, some foreign houses did mention that global portfolios are allocating to markets such us the Philippines for defensive purposes.  Now, I’ve heard it all.  There was a time when no portfolio wanted to touch the country because of insurmountable risk.  Now, investing in the Philippines is defensive?  We must have gone a long way.

Actually, considering that the country is up to its ears in gross international reserves and our fiscal balance can be the envy of many a developed country, it makes remote sense that asset values can in fact be preserved by investing in the Philippines.  Take the telecom, financial and property sectors, these can be kept profitable for some time to come yet.  With the country’s enormous savings balance maintained predominantly in cash, it is likely that banks and real estate will be patronized and margins need not be squeezed.  Of course, telcos will ever benefit from the never ending tele-babad tendencies of the Filipinos; now it is even a text to death compulsion.

Anyway, it is not as if local investors and traders have not been aware of the global threats from Europe and the U.S.; it is just that after thinking about all this, the money will still have to flow somewhere.  Indications are that they are flowing into the Philippine economy, and we have not talked about mining yet.  If there is anything to be said, asset values can be kept preserved in minerals which are finite in nature and whose values tend to rise with inflation.  Nevertheless, most mining issues were not so robust today although LC and MA appear to be keeping their prices above water.  PX and AT may just be taking a breather before it surges again.  I guess, my message is to be cautiously engaged in the market.  Notice how property stock MEG was quite active today.  MEG has not been the most active stock for a long time, so this volume spike may be telling us something.  Remember the volume spike on VLL last week?  I would also keep an eye on MBT, BDO and BPI as non-performing loans are at their lowest since the 1997 financial crisis.

I reiterate – Banks, Property, Telcos and Mining.  The values are there, so check them out.

I was not able to update Thursday and Friday as I had gone to Cebu again for a business planning session.  We stayed at the Marco Polo, and while I really wanted to write down my thoughts, the comfort of relaxing in such a fine hotel after some mind wrenching brainstorming was just to good to ignore.  Especially after a sumptuous buffet from the legendary Cafe Marco,  I guess the ambiance just made me too relaxed to do anything else but enjoy the hotel’s wonderful amenities.  Today, it is back to the market.

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