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10:30 p.m.  Monday  1 November 2010

Being a long weekend, I was able to have a longer look at what has been happening over the past two months, a time when the PSE Index surged around 20%.  To gauge the breadth of this rally, I took a look at some stocks which I have been following, particularly those that would weigh on the index.

The biggest out-performers were AGI and DMC, both of which had gone up around 90% in these two months.  The next best were PNB and AEV which returned above 60%.  These were followed by a host composed of AEV, SMDC, EDC, AP, JGS, FGEN, SCC, and MEG, all of which returned anywhere from 40% to 50%.  Those that performed slightly above the market were MPI, MER, URC, RLC, SM and UBP which returned around 30%.  Large cap stocks AC, MBT and BDO performed just about at par with the market while BPI, ALI and TEL lagged with around a 15% return.  You can fine tune the percentages to get the exact figures.  What I wanted to point out was there had been quite a bit if out-performance in the market, and that there are sectors that reflect investor views.

What I see in investor preference is the inclination to power and infrastructure, property and holdings.  These are essential plays of a strong growth of the underlying economy.  Banking stocks are all over the place depending on the specific outlook on the banks.  I had expected the banks to be a surrogate on the economy, but it has not been the case.  Nevertheless, investors appear to be making a call on the economy from their stock preferences.

I did not mention the performance of the  mining sector because while stocks like PX, LC/LCB, AT and ORE have been making great strides, the resource sector moves in a different perspective from the other sectors which are beneficiaries of a strong economy.  In fact, the mining sector can continue to move up even as the rest of the market consolidates.  It is because mining takes its cue on metal prices and the cycle on materials.  The cement companies would be somewhere in between materials and infrastructure.

This is probably why I am inclined to put on mining stocks in my portfolio.  I am patiently waiting for a correction but am also looking for opportunities.  What is also interesting in our market is that some stocks which have been dead for sometime looks to be coming back to life such as RFM which I hear is planning a follow on offering.  Then, there is the idea that the SMC and PCOR tandem would be coming back to life soon.  A similar resurrection was that of PSB which surged to 62 last Thursday.  I hope the phenomenon continues.  This would open up the possibilities for other third line shares which I genuinely hope would develop an investor following.  On my last count, there are only around 70 stocks that have seen more that P1 million value turnover in the last six months or so.  I am really hoping that the number increases, after all, more and more of these stocks have been developing strong fundamentals.  Some examples would be FOOD, COAT and SPH.  Of course, it will take time, and in special cases even some jockeying.

Looking at the index, it seems that a decent consolidation is called for.  Actually, I have been patiently waiting for one ever since the index broke 4,000 in mid-September.  I must say that I have been happily surprised but sadly mistaken that there had been no correction.  Investors even took the index past 4,200 with ease as stocks that had not been traditional leaders showed the bigger gains.  It is tough to second guess the market and it has cost me a bit in lost opportunity.  I think the right thing to do is to keep invested for as long as this bull is on the loose.

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