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6:40pm   Tuesday  17 August 2010    Philippine Stock Exchange Index  3502.25 (+0.65%)

Earlier today on Bloomberg Television, Mark Mobius, the Singapore-based executive chairman of Templeton Asset Management Ltd.’s emerging markets group, said that he thought the global economic recovery is well in place and may accelerate as growth in developing nations counters a slowing pickup in Japan and the U.S.  He believed that “Going forward, the numbers will get better and better.”  Why is his view important to investors?  That is because he is one with very good track record in emerging markets and he understands smaller markets such as the Philippines.

Looking at the PSEi movement in comparison to the DJIA, I notice that when the U.S. index is positive, the PSEi is positive.  When it is negative, the local index may be negative but not as much, percentage-wise.  In some cases, it even goes positive.  When I look back at the quarterly moves, the local index was correlated to the Dow in the first quarter when the direction had been generally up.  It was not correlated when the DJIA was dropping in the second quarter.  In the beginning of the third quarter, when the U.S. index was rising, the PSEi was correlated.  Approaching the first week of August into the second week, as the U.S. softened, the local market eased but has recovered which cannot yet be said of the DJIA.

The observation and outlook of Mobius makes sense.  I have been thinking all along that there would be some divergence in views between the U.S. and Asia ex-Japan.  I believe that smaller markets such as Indonesia and the Philippines will follow the mode which emerging markets investors are expecting – an outperformance compared to the west.

Today, our market surged again with an even bigger gain than yesterday.  Investors, however, are still being very deliberate and are accumulating strong issues into their portfolios.  If you look at the most active list, four banks are there – MBT, BDO, UBP and PNB.  I think the sector move in banking is taking firmer hold.  I will not be surprised if we see more banks coming into the most active list in days to come.  Banks have been traditional beneficiaries of strong economic growth and the aggregate banking numbers recently released by the BSP provide indication that indeed the underlying economy is strong.  I would suggest that investors start adding to some banks to their portfolio.  I realize that many followers of this blog have been in and out of PNB.  It may be a time to give the others a try although PNB should benefit as well to the buying wave into the banking sector.  MBT is potentially worth 70 and I read someone call BDO close to 55.  The views that I’ve read on BPI is not so enthusiastic simply because MBT and BDO are outpacing BPI in loan growth.

Over all, I think our market is in good shape.  If there is in fact a double dip in the U.S., it is not as if it is an unknown quantity.  My take is that it is already in the prices of local stocks.  Fortunately, we have companies with very good fundamentals which can carry out rises in prices for sometime to come.

I’m glad that in the past few weeks there were a lot of skepticism over the ghost month and double-dip.  This had allowed investors to be more deliberate in their stock picks and position and cash management.  Most portfolios have their cash allocations still at comfortable levels.  There is a lot of buying power out there such that if this market goes through a slump, there would enough ice cream to scoop out of the can.  When I was a kid, we were happier with double-dips than people are these days.  Maybe because in those days only ice cream cones came in double-dips.

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