3:00pm Thursday  9 July 2009   Philippine Stock Exchange Index closed at 2473.85 (+0.48%)

Meralco (MER) continues to zoom.  In some people’s minds, they think this will never stop.  I guess some people had seen balloons fly and think they would float endlessly into space.  I used to think so myself… when I was 5 years old.

The only thing that I am sure of aside from the fact that there are no balloons in outer space is that this market will not run away from us.  The other thing that I’m sure of is that most investors have raised their strategic allocation for stocks.  Just like me, many are simply trying to time the market.  Seasonally, July and August are slow months because of school holidays in Hong Kong and the western hemisphere.  Psychologically, people do not want to do anything except plan their vacations.  The market will appear to be trendless in the coming days.

Nevertheless, in this period of lull, I think we will see stocks come to bargain levels again although these levels may not be as low as they were in March or even April or May this year.  Today, the BSP cut policy rates by 0.25% to 4%, the lowest  it has been ever.  I think that this move should be good for banks because it widens their net interest margins.  At present price levels, bank issues are reasonably cheap.  I expect that loan growth during the 2nd quarter would have been decent.  One thing for sure, financial shares will underpin the rest of the market in the near term.

I would think that with interest rates likely to stay low for sometime to come, property shares should also remain buoyant.  The pick up in sales by property firms in May and June should solidify 2Q09 earnings outlook for the rest of the year.  With a positive outlook in the property market, consumer discretionary stocks should also benefit as new home sales prop up consumer spending.  There are strong indications that the unusually slow growth in consumption seen in 1Q09 GDP figures will be revised upward when the 2nd quarter figures are released next month.

What I anticipated to be a downward consolidation of the market may just end up to be an extended sideways movement.  This would squeeze away weak holders of stocks and firm up positions of strong holders.  I continue to think that selective buying should be done during this period as the opportunities present themselves.  We should be buying bank and property shares whenever there is a dip.  Just the same, I still do not like buying balloons.


Related posts