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2:50 pm   Monday   11 July 2011

I decided to take Monday off, so I am in a beach in La Union with my wife watching my son and his wife surf.  Actually, my wife and I are looking after the baby while they surf with a friend who is in town from Vancouver.  She wanted to check out the surfing scene in the Philippines.  The good thing about being in the beach on a Monday is that there is nobody here but us.  The other good thing is that even if I am in a provincial town 300 kilometers from Manila, I can still follow the market through the power of the Internet.

Now that the first half of July is almost over, we can safely say that most quarter end strategies have been put into place by portfolio managers.  From an investment flow research service that I follow, I discovered that in the month of June, a good amount of foreign funds had come into the local market.  Interestingly enough, there was increased buying volume of TEL and GLO from these foreign portfolios.  It looks like the profitability score for the telecom sector has increased from the perspective of foreign investors which makes it even more imperative for both TEL and GLO to address the foreign holdings issue on their shares.

Why do I think foreign funds are buying telcos?  Well, I think that in the Philippines, yields are still pretty hefty, especially for TEL.  Given a risky outlook in many of the developed markets, a company like TEL which offers safe and predictable returns becomes quite desirable.  Remember that PLDT’s S&P credit rating is BBB+, an investment grade rating.  Remember as well that Morgan Stanley raised their portfolio rating on the Philippines from underweight to even to the MSCI Philippines.  These factors raise the likelihood of attracting more funds into TEL.

We had a strong week for the PSEi last week, and we even saw an all-time high for the local index.  If the index is down from last week’s highs, I guess a good portion of it is a result of profit taking.  Certainly, for EDC, after breaking out from 6.80, we saw resistance at 7.04.  One thing I’m sure of is that below 6.90 we will see a lot of buying in EDC.  Its parent – FGEN – is still going full steam.  FGEN gets a whole lot of earnings growth from EDC, so I would be very constructive on a consolidation of EDC.  In fact, if one is in FGEN now without any EDC, you should consider rotating from FGEN to EDC soon.

The mining story continues to go great guns with AT still gaining while LC and PX are taking a breather.  I would now be on the look out for other mining shares since the sector has been attracting a lot of followers.  The good thing about the mining sector’s surge is that it has been going on with little or no foreign buying.  A lot of mining enthusiast lost all hope in ORE and sold it down only to realize that they had sold at the blow-off stage.  I always believed that for a mining story to be credible there has to be a credible producing mine.  That was why I asked some of my colleagues to visit the mine-site and the transshipment point.  As long as they are in profitable production, the stock will inevitably value the profitability.  Foreign investors focusing on mining stocks understand this.  i would not be surprised if foreign funds start foraging into the local mining sector.  After all, the whole world knows that some of the world’s biggest mineral deposits are in the Philippines.

The same thing goes for any other mine.  In fact, in both the S&P and PSEi, earnings have always been imputed in a stock’s market price for as long as there is liquidity in the issue.  I would therefore suggest keeping an eye on this sector due to the enormous mineral resources that the Philippines has.

So, our market is pulling back; do have any prospect at all moving forward?  I think banks and financials will show very good earnings results when 2Q-2011 figures come out that is why I would hold on to MBT, BDO and BPI.  I think the holding companies will also reveal a profitable quarter so AC, DMC, JGS, FPH and SM should be positive in any portfolio.  AGI will likely recover some more as most investors are now digesting the information on the stock more constructively.

Anyway, I hope most players have a good trading plan for this month as July tends to be very tricky for the market.  A wise general named Dwight David Eisenhower once said “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Trading plans may not work out the way you want them to, but if you do not anticipate and plan your moves, one thing is for certain – you will fail.  Please do not make the mistake.

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