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5:04pm Tuesday 9 August 2011

What I would like to do now is to put Philippine stocks in perspective. On Monday, 1 August 2011, the PSEi shot up to its highest close ever as people thought that the bullishness in July would carry momentum through to August. At that time, the U.S. markets had already been experiencing six consecutive days of decline. The following day, local players had started to take profits although most participants saw this simply as a correction since the market had just reached historic highs, and the U.S. market was declining in spite of the U.S. debt ceiling was raised averting a potential default by the U.S. government. The local market was quite impervious to foreign developments because the apparent flows by global investors favored emerging markets.

Then, the shoe fell; the DJIA plunged 513 points on Thursday for no earthshaking reason except that jobs data in the U.S. continued to be lethargic. In fact, the DJIA even rebounded by 61 points on Friday without anyone expecting the blow to the chin given by the Standard & Poors Ratings Agency. In retrospect, I think there were a few who knew the information already which was the real reason for the 513 point drop that Thursday.

Anyway, the S&P downgrade appears to have caused a lot more damage globally than people had expected. I liken the S&P downgrade to the storybook tale “The Emperor’s New Clothes” because S&P merely highlighted something that we could already see yet refuse to recognize. Countries with debt to GDP ratios similar to the U.S. have been rated much lower giving credence to the downgrade, yet investors apparently expect more from the U.S.

The DJIA is down 1,942 points or 15% from its recent high on 21 July 2011. The PSEi has dropped 406 points or 9% from its all time trading high. The question is how much further do we go. Your guess is as good as mine. Last Friday, I warned of caution, and on Monday, I urged investors not to be heroes. An old Chinese proverb says “do not try to catch a falling knife.” I hope many heeded the advise because catching these stocks as they drop may cause even greater harm than good. I hope there were investors who had the guts to take some losses so as to have cash on hand.

Actually, I had sold some losing positions over the past few days just to have cash on hand. Unfortunately, I had decided to keep my power and mining stocks as they were high conviction choices. I also kept a small position on MBT. I sold positions in property shares though I decided to keep some VLL and RLC. What used to be all green on my stock position page was mostly red except for LC and ORE which I own at much lower levels. Now, my total gains have been reduced, a sort of personal haircut of my choice. The good thing is that when all the dust settles, I would have enough cash to buy those that I missed earlier such as MA and even DMC.

It is tough to gauge where this market is going particularly because the markets in Europe and the rest of Asia are still reeling from the 635 point drop in the Dow, and I am not one who will simply buy hoping for a bounce. I think we may have a few weeks to go before we see any confidence developing among local investors.

Today, we saw net foreign selling in AP(135m), EDC(148m), MER(25m), SMC(253m), AGI(103m), AEV(82m), AC(43m), DMC(40m), SM(62m), ALI(36m), FLI(19m), TEL (581m), ICT(6m) SCC(15m), MEG and VLL(22m combined). The good news is that there was net foreign buying of MBT (30m) and AT96m). Net foreign selling today was Php 1.5B and yesterday’s net foreign selling was Php 1.6B. There could a bit more of foreign selling in the days to come, but they will come from last year’s favorites since it is in those stocks where foreign portfolios still have some profits. My impression is that the foreign portfolios do not hold any of the mining stocks and may use this downturn to look into the mining sector.

Today, absolutely every stock market is down except Australia which is a traditional natural resource (mining) market. I would like to think that the Philippines will soon be the natural resource investment choice in ASEAN simply because, in this region, our country holds the largest mineral resource in base and precious metals. Once investors recognize this fact, we know where our stock investment returns will be coming from.

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