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The Philippine Stock Exchange Index (PSEi) traded at the all time high today after what seemed to be an all time high already last Friday.  We seem to be moving farther and farther into uncharted territory as far as the Philippine equities market is concerned.  The big question on people’s minds is will this rally continue or will we be up for a major correction.  Investors always get wary when stock prices begin to trade  at levels seen before.

In my view, I think stock prices will definitely go higher.  In fact, many of the index stocks are not yet past their all-time highs.  For one, AC which closed at 404 today, had traded at a high of 447 (adjusted for stock splits) in 2007.  TEL traded at a high of 3285 also in 2007 and is only at 2826 today.  BDO traded as high as 73 in 2007 while MPI traded as high as 7 in 2009.  I think the notion that because the market has broken new ground, it cannot go further is a very myopic view.  It is not the way an investor should think.

An investor should be forward looking and would constantly assess fair value of the stock along the way. Investment activities are endeavors that always require future oriented thinking.  Of course, we cannot ignore price actions in the past since they serve as sound guidance for decision making.  However, we must bear in mind that history is made up of events that never happened in the past.  When Magellan sailed for the Philippines, he went through a vast area of uncharted waters, but the idea that there was the prospect that a reward was forthcoming because of his assessment of the probabilities that lay ahead.

I think investors both locally and globally are valuing things differently nowadays.  Again, they may be right or they may be too optimistic.  The out come would be how patient they would be in waiting for their assumptions to emerge.  Right now, a good number of foreign investors just want to have exposure in the Philippines because of the country’s prospects.  Whether stocks are expensive or not matters very little when there is a large amount of demand pushing prices.  I think investors should just go with the flow and stay with it until stock valuations become ridiculously high.  That possibility will occur when company results disappoint down the road.  Right now people are willing to bet that it wouldn’t.  My view in all this is to stick to the basics – buy the stocks that are still reasonably priced based on sound future assumptions.

Foreign funds appear to favor banking stocks as an indirect route to a Philippine infrastructure play because the banks will increase earnings by financing infrastructure projects.  We saw BPI, BDO, MBT, PNB and SECB do very well today.  It also seems that VLL may also be an infra beneficiary because of the Daang Hari new access toll road to SLEX.  Of course DMC and MPI remain to be the major infra players.  EEI could be a second line choice simply because EEI lacks liquidity.  Personally, I think holding companies are good buys, but AC is already expensive.  If one wanted a similar exposure, JGS would a an excellent choice because like AC, JGS is also in real estate development including mall operations, telecoms, and banking.  More than that, they are in food, transport and manufacturing.  Some analyst place the net asset value of JGS at 34.

A reader asked if TDY was worth a look.  My answr is a resounding yes since TDY is second only to Bacardi in global rum sales.  They have ample room for growth as they embark on an export push which positions their rum as an excellent mixer for a variety of cocktails.

For those who follow mining stock and have asked about LC and MARC.  Well, I think you buy LC for its huge mineral resource prdominantly gold.  You get into MARC for the production track record that they showed in 2011.  I would view ORE in the same way since they were able to bring nickel production into higher gear in 2011 and are looking to double production in 2012.  For followers of NI and DIZ, it seems that institutional buying of these stocks have taken a lot of supply out of the market.  I can believe that thes stocks can pull off good earnings results in 2012 to satisfy these foreign investors.

Let us be clear on one thing:  we are in a bull market and when the tide rise, every boat rises with it.  The question that should pre-occupy you is which stock to buy and not when to sell.  When I started this blog, I said that the Philippines was in a long term bull trend.  You will not be doing yourself a favor if you are out of the equities market.  If you have a tough time deciding what to do, I suggest you buy an equity exposed fund because equities is really the asset clas to be in for the next 3 years.

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