Yesterday, European finance ministers reached an agreement for an aid package for Greece that includes a 53.5 percent write-down for investors in Greek debt but shields Central Bank lenders from haircuts. The deal brings to at least 386 billion euros the sums spent or committed to save Greece, Ireland and Portugal from bankruptcy, and to insulate Europe from financial disaster. Asian stock markets were mixed today, but most European markets are down as I write. It seems that the Europeans are selling on news.
Philippine stocks continue to surge but I sense some rotation going on. Ayala stocks – AC, BPI, MWC and GLO – were down. Only ALI was up. Among the Henry Sy stocks, SM, BDO and BEL were down while SMDC and SMPH were up. Aboitiz stocks AEV and AP rose strongly but UBP tanked sharply. Gokongwei stocks JGS and URC rose while RLC remained unchanged but CEB came off. Among the banks, MBT and SECB were down while PNB rose. Even the mining sector is having a mixed performance with recent strong performers NI and ORE down while DIZ has not just rebounded but appears to be headed past the ceiling. BC, MARC and NIKL also appear to be attracting buyers. LC/B and MA/B looks like market is ignoring them for the time being.
With the index hitting an all time high again, it becomes more difficult for some to enter the market buying the large cap shares. This is why rotation makes sense because it gives a chance for some stocks to consolidate while laggards do some catching up. This also puts some focus on special situations in the usually speculative oil sector and we are seeing OV, OPM and PXP getting a lot of attention from both institutions and speculators. Oil stocks are more volatile than mining stocks because of the risk reward nature of oil exploration. OV has steady earnings and pays regular dividends that is why it has become the object of widespread participation. The high reward is expected when exploration starts in the following months given that the prospects of a large oil deposit find are very optimistic.
The bottom line of all this comes down to the fact that investors are really chasing after returns, at least for the time being. If we look at the fixed income market, the Philippines sold PHP16.316Bln 15Yr Bonds at an average yield of 5.008% and PHP33.3 Bln 20-Yr Bonds at an average yield of 5.285%. The risk reward ratio is really shifting heavily to the stock market. Economic fundamentals are also favoring equities with the balance of payments in surplus again in January and foreign reserves rising to $77.358 Bln from $75.302 Bln in December 2011.
Personally, I will go with the flow meaning, I will follow the rotation and take profits in some stocks and redeploy in laggards. Perhaps that is what is going on in NI and DIZ – those who have made a lot in NI have shifted to DIZ and are making another bundle. It will not be long before we see the flow coming back to NI again and perhaps even ORE. The thing about a bull market is it puts money back into the hands of investors which in turn emboldens them to re-invest in stocks that they have made money previously. People will always be comfortable with stocks that they are familiar with.
