8:36am   Monday  16 January 2012

Last Friday was the 13th, to many, a day of bad luck day.  A few of my favorites got it in the chin.  MBT, which I thought would have been very strong fundamentally, took a very bad beating.  Gaming stocks AGI and LR were equally tossed around, but BEL held its own quite well.  Consumer stock PGOLD finally broke down while URC appears to have hit resistance.  Large cap index stocks TEL, AC, ALI, AEV and MWC look a bit on the pricey side but they appear to have strong support.  What can we tell from all of this?
Certainly, our market is benefiting from the January effect.  I read an article early this morning by Mark Mobius.  Here is the link: http://mobius.blog.franklintempleton.com/2012/01/12/the-year-that-was-and-the-year-to-come/#more-1329
The thing about Mr. Mobius is he is a strong believer in emerging markets and has a lot of funds and followers behind him.  One reason that I consider to be supportive of PSEi index stocks is this persons group.  From my reckoning, The Templeton Emerging Markets assets under management (AUM) is over US$50 billion, and if only a fraction finds its way to our market, that would be enough to prop our large cap shares up.  More than that, it tends to attract other emerging market funds to the PSEi because these funds try to mimic each other so that no one significantly outdoes the others.
I think is we can expect a greater flow from overseas fund managers to trickle into PSEi index stocks this year.  In 2011, full year net portfolio inflow in both stocks and bonds was $4,077.9 billion, the bulk of which went to government securities or FXTNs which incidentally was the best performing asset class in 2011especially in the 20 and 25 year maturity.  Unfortunately, this was lower by 11.5 percent than in 2010 which is understandable from the fixed income side because the PHP was not as strong in 2011.  The brighter side of my expectation is that equity investors from abroad could eventually ride not just on the index but the underlying themes that veteran Philippine followers are following which are Infrastructure, Gaming, Consumer and Mining.
Certainly, foreign funds have picked up the consumer story judging by how PGOLD performed from its IPO.  It was initially plagued by the euro zone fear, but when the dust settled, you could not keep foreign portfolios away from the stock.  Perhaps, we are seeing some profit taking on PGOLD just as we are seeing an overbought condition in URC, but judging how SM and SMPH have been over the past two weeks, I firmly believe that a strong surge in consumer plays will persist though out the first half of 2012.
Infrastructure and gaming have been on the screen of portfolio managers as we can glean from the performance of DMC, MPI and recently MWC among infra stocks and AGI and LR in gaming.  It does not surprise me that profit taking had set in on a Friday the 13th.
While the foreign houses have picked up the Infra, gaming and consumer themes, mining may yet lack the following.  I think it is because the menu for large cap mining stocks are limited to PX, AT and NIKL, whereas the more exciting ones are LC/B, MA/B, NI, and ORE.  Right now, enough research is being done in LC/B, but it is only recently that foreign houses have come to organize their piece on ORE and NI.  Justifiably so, these analysts have to see a certain sustainability in production before putting time and effort in a stock.  Anyway, a major foreign hose which is known to be strong in natural resources is having a mining conference in the Philippines in early March.  I believe such a conference will enable more institutions to understand and gain insight on the Philippine mining industry.  The positive side of it all would be a wider audience of savvy investors to stocks in the mining sector.
In the U.S., retail sales rose a slight 0.1% in December from November, the third consecutive month of slower growth.  We can expect positive influence from the U.S. markets, but the debt ceiling may bring some bumps down the road.  The U.S. government is $25 million shy of the $15.194 trillion limit Congress set in 3Q-2011.  Europe, on the other hand, is slowly stabilizing.  Spain raised nearly €10 billion in €4 billion to €5 billion in bonds maturing in 2015 and 2016, while the European Central Bank left its key interest rate on hold at 1%.  ECB officials seem to be confident that things are manageable in euro land.

The fly in the ointment today may be the start of the Corona impeachment.  While this could go on with very little effect on the capital markets, political issues tend to blind side market participants from time to time.  The worst case scenario is a constitutional crisis resulting from any decision by the supreme court on pending petitions seeking to question the impeachment process.  Right now, it is all up to the senate; but if the supreme court asserts itself, we could be in for trouble.  In the meantime, I think it is more productive to follow the flows from institutional funds stating their commitment to our market.  At the end of the day, it is really money flow that counts; and if Mr. Mobius is to be listened to, the sentiment may be the stronger influence in our market.

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