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10:45  Wednesday  13 January 2010   Philippine Stock Exchange Index   3088.03 ( the market moved down 17 points from the open)

The market movements over the last few trading days tells me that the January effect is well underway on Philippine stocks.  My bellweather stock is TEL which has not looked back since the year started.  TEL had  underperformed the market in  the second half of 2009 because of  M&A activity in MER, MPI, PLTL and PX.  This was due to the involvement of PLDT head honcho Manny Pangilinan in all this activity.  Now that the smoke has cleared and everybody somehow has an idea of how these stocks will play out, the objective value of TEL is coming out.  Many international funds buy TEL as a surrogate for the entire Philippine market, and TEL is the best indicator – to my mind – of the January effect in the PSEi.

Many local investors may be extremely cautious in entering the market this early due the huge gains we saw last year.  After all, the index surged 63%.  We hadn’t seen anything like that in many years.  In some people’s minds, they are thinking that this market has to come down before it goes up – that is grandfather wisdom.

Unfortunately, I don’t think that it works that way in the short-term.  Institutional investors, whether locally or internationally, open a new chapter on January of every year.  Bonuses have been calculated for 2009 and will be paid soon.  What these guys are working on today are the 2010 bonuses.  The gates have just opened and it’s a new show that we are watching as far as the big money is concerned.  What people should do is look forward and not the past year.  To make money in the market, one must look forward.  In our case, we take guidance from forecasted earnings and that is why the market is measuring prices based on 2010 earnings.

Having said that, I think the themes that we were watching since last year are taking greater hold in company earnings.  For example, generation capacity of AP, EDC and FGEN will be moving to much higher plane this year.  It has to because if it doesn’t, the country will not have any electricity.  For consumer related stocks, we are closer to elections today and what were mere forecasts revenues last year are being realized as revenue today.  No wonder URC is as strong as ever in spite of the market opening lower.  I’m keeping an eye on GMA7/GMAP and PIP.  Incidentally, soft drinks sales surge when the weather is warm and it looks like the country is experiencing el nino.

Overall, I reckon that the U.S. market is still providing the direction for markets this early in the year.  There were a few negative surprises that cause major markets to decline overnight.  The U.S. trade deficit coming in at $36.4 billion did not provide encouragement to the market.  While this indicates a recovery moving ahead, the prospects of a rate increase by the U.S. FED sent jitters to the market.  Personally, I think these bumps on the road are all part of the longer term view – a solid recovery of the global economy this year.  As long as interest rates do not disrupt growth, any nudging of monetary reins by the FED should not be disruptive of growth trends.  Looking beyond today’s pull back, I think the January effect would be pretty obvious, but we’ll only be certain of it in February.

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