No wonder Wall Street dropped last week. New stock issuance was sucking up all the spare cash. Ford sold $1.6 billion of new shares to forestall bankruptcy. U.S. Bancorp issued $2.5 billion in new shares to partly pay its TARP advances from the government. The rest of the 18 bank holding companies in the stress test released last week will all be raising new equity. It should be of no surprise to us that Wall Street has suddenly become defensive. After all, the S&P index has gained 31 % since March 9.
While most Asian stock markets closed higher on Friday, the S&P Asia 50 index was down 2.6% for the week and the MSCI Asia ex Japan declined 1.5% in the same period. Asian markets will likely start this week soft, looking to consolidate the gains of the past 2 months. In Hong Kong, fund managers have, nevertheless, started to shift to cyclical stocks in anticitpation of an Asian recovery earlier than that of the U.S. or Europe.
In Singapore, Temasek Holdings sold its stake at Bank of America while increasing its stake in China Construction Bank. Many sovereign wealth funds lost money bailing out the biggest global financial giants such as Merrill Lynch, UBS and Citigroup. Temasek said that it will cut investments in OECD countries to 20% while increasing its allocation to emerging Asia where they believe risk outlook is declining.
I am in total agreement with Temasek. I don’t think we can see much improvement in the developed countries as growth prospects remain dismal and will probably be dragged by the huge debt load that their governments have taken on. Investment money from sovereign wealth funds, global portfolios and even wealthy families in Asia are always on the lookout for investments that make sense and what makes sense in profit and growth.
In PSE last week, Q1 net income were reported by: FLI up 10.6%, GMA up 10%, MBT up 10.9%, andMEG unchanged at Php 1.02B. Profit declines were reported by: ABS down 21% and FPH down 33% due to divestment of NLEX. The earnings season has begun and we’ll be able to see a better picture of what lies ahead in the markets as other listed companies announce their quarterly earnings.
This coming week may not be as frenetic as the past few weeks. Like I said earlier, rallies do not follow a straight line. No garden is without its weeds. A consolidation weeds out weak players. Those with conviction and perspective of domestic fundamentals will remain in the game and play to win.