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9:30 am  Wednesday 16 June 2010  Philippine Stock Exchange Index 3319.50 (at the open)

The Dow, S&P and Nasdaq all closed higher overnight in new York.  Some analysts believe that the rally that started in the beginning of June has been renewed as the high-range closes on all three indices sets the stage for a steady to higher prices for the rest of the week.   If the U.S. markets extend Tuesday’s rally into Wednesday, it could squeeze out a lot of the bearishness that had been brought about by the European sovereign debt crisis.

We can agree or disagree with that view, but the reason I mention it is because while the Philippine market has not been completely correlated to the major markets, local investors inevitably react to major market moves.  What I see as an opportunity here is that a number of stocks are trading in oversold levels.  The ones I see are EDC, FPH, MPI and PNB.  I think there may be a lot of skepticism on EDC due to the earnings drag that people foresee in their acquisition of the Bac-Man generating facilities from Napocor.  One reason why I think it is worth the trade is because all of the foreign brokerage houses are all focused on the power sector as the main story in the Philippine market.  Of course the favorite has been AP and I have no reason to disagree.  However, i think that most people will agree that the long-term story on EDC remains intact.  The recent price moves may be seen as an adjustment to the lower earnings per share expectation on EDC.  In my view, even if they downgrade the earnings by 15%, at a price of 4.50, the stock will still be trading around 11X PE which is not so bad for a very liquid stock.

MPI could also end up to be a profitable trade as it is trading close to the lows of what I perceive to be its trading range of 2.65 – 3.25.  MPI is an infrastructure play that may seem to be slow-moving to some, but the stock is a good trader for short-term traders.  It’s long-term prospects, nonetheless, cannot be ignored particularly because it owns management control of MER.  Incidentally, MER should also be a good short-term trade.

While the excitement will continue to be in the power sector, there is the view that the broad market will give benefit to banks as a lot of large ticket financing is expected in the first year of the Aquino administration.  Do not forget that in all presidential elections since 1992, the market had gone up at least 14% in the 12 months following the elections.  I will continue to see favor in MBT and PNB while SECB, CHIB and even RCB would enjoy relative firmness.  The reason why I am not too hot on BPI and BDO is because these stocks are quite expensive per my valuation.

My message is really that we will be seeing a favorable market now that the global markets are promising some hope.  Telcos, property and some theme plays like AGI and JGS would also stand very good chances of giving good trading profits.  Just stick to good fundamentals because the market looks to have come back to our side.

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