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7:45pm  Wednesday  2 September 2009  Philippine Stock Exchange Index 2808.21 (-1.57%)

The excitement of following any market cannot be matched if one did not have anything at stake.  I have been following this rally since it started.  As early as April 20, 2009 which was over 4 months ago, I had officially declared my bullishness in the Philippine stock market as well as the global markets when I made a presentation at the Asian Pensions & Investments Summit 2009 in Hong Kong even as many veteran fund managers thought that the on going rally was just a blip or a trading opportunity.  I had traded this market even before the rally started in the belief that fundamentals of many of the local stocks were of excellent value.

Looking back, my mistakes were not that I bought the wrong stocks because I did not; my mistake was that I bought the right stocks but sold too early.  Fortunately, I was able to re-allocate my portfolio and managed to pick up cheap stocks that caught up with the rest of the market.  Today, we come to a crossroad where we have to take a view on how deep this consolidation could be because indeed, we are facing one right now.

Seeing the list of the 20 most active stocks traded in the PSE today, 15 were down, 4 were unchanged, and only 1 issue was up – BDO.  At that, BDO had not at all been a stellar performer in this rally together with its sisters,  SMPH and SM.  As to today’s gainers, only 2 recognizable second liners could be counted – PIP and TUNA; one is a domestic consumer play while the other is a global consumer play. While Shanghai was up 1.16% today, the rest of Asia tanked: Hang Seng dropped 1.7%, Nikkei declined 2.37%, MSCI Asia gave up 1.5% and MSCI Emerging Markets was down 1.4%.  As I write, Europe was also in the tank with the DJ Stoxx losing 0.83% at mid-day.

Which way do we go and what do we do?

I started selling a bit to clear my portfolio Wednesday last week not because I was brilliant but because I wanted to clear some space in my porfolio to buy more LC, ISM or AGI.  Fortunately, my on-line broker will not allow me to post a buy until the sales proceeds are credited to my account which happened only today.  So by some stroke of luck, I had lightened up on my positions just before prices came down.  Actually, at the open today, I still sold some positions where I had some profits with the view that if this consolidation continues, I will have some buying power at hand.  Seeing the market weak, I postponed any buying plans today.

Have I turned from bull to bear?  Categorically no!  I like the market, and I am in fact very happy that it is consolidating because I think many fund managers who missed a good portion of this move may be able to put some stocks away at cheaper levels.  Something like this will strengthen the gains that fundamentally strong stocks have made.  Take Ayala Corp., this stock was trading in the bargain basement for most of 2009.  When it rallied, many fund managers sold the rally thinking that they were lightening up on portfolio risks.  Now that the broad picture on the economy has gone better, many portfolio managers would like to buy their AC positions back, but it has just gone up too high.  A consolidation will bring prices to affordable levels.  I would use the same reasoning for  stocks like BPI, MBT, GLO, TEL, MWC, AP, FLI, FPH, FGEN, EDC, and even MER.

The major markets will bring global equities into consolidation mode.  We’ll be seeing that in the weeks to come.  I can’t say when this consolidation will turn, but I believe that it will eventually.  The only thing that could stop this rally permanently is if monetary authorities start to taking back money supply and which crazy central bank wants to do that now.  Yes, the central back in China is trying to curb lending to stock speculators.  That is why their market is consolidating, but monetary authorities are not shutting down the tap for commercial and industrial production.  None of the central banks are.  The way I see it, this consolidation is a gift.  Thank you very much.

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