Gus Cosio Says So – December 10, 2013

---

Today was an irony in the stock market. TEL which had been in consistent decline over the past few weeks went up in the midst of all other index stocks dropping. And even with the market down 2.04% (122.54 points), the market was in a net foreign buying position of roughly Php585.5 million (ex-block sales). Normally, you'd expect otherwise because TEL is a traditional bellwether stock which usually sets market direction. Similarly, when the market experiences net foreign buying, the index normally rises; yet it went the other way today.

I had been saying for a few days now that one should start having a look at entry prices because we, the local investors, should be the ones buying ahead of foreign fund managers. That way, we will own the market at levels cheaper than the foreigners. In such a position, we will not get buffeted so much by their fickleness.

Unfortunately, most locals do not set value judgement on their own. Rather, the let the foreign funds do it for them, and they just follow the flow. While there may be conventional wisdom in the for the Philippine market, the same is not true in more developed markets. Normally, the foreigners would take their cue from local investors on an assumption that they have greater familiarity with their own stocks and its values.

Anyway, there still is opportunity for locals to take the lead. My sense is that selling of the most widely owned stock by foreigners - TEL - has already dried up. This means that many foreign funds already have their cash. Foreign selling pressure has likely waned already and that is why we saw net foreign buying today. Typical of local investors in our country, they chase the tail of foreign flows. Is it surprising why a lot of local players lose money? My take on the market is that prices are already cheap. A stock like MBT is around 25% off its high. That to me is a deep consolidation in price considering that on a price to book basis, it is just around 1.4X. That is too cheap for such a big bank like MBT. MER is down because of the price hike controversy, but that issue should not last very long. SM is another stock that is around 30% off its highs. These are all stocks with very stable core earnings. I see very little reason why they should stay down here for long. We locals must develop the wherewithal to judge values ourselves. We must judge not from the foreign fund managers' standpoint but from our own. When we do, we will no longer fall prey to the vagaries of foreign sentiment because we will be the ones setting the course. We will be the head, not the tail.