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10:05 am  Tuesday 25 May 2010  Philippine Stock Exchange Index  3154.22 (down 37 points)

With all this volatility in the global markets, it is inevitable that the local market would absorb a lot of this volatility in spite of positive macroeconomic fundamentals locally.  Of the country’s total exports, 43.3% go to East Asian Countries and 16.8% go to the U.S.  That leaves less than 40% that goes to India, the Middle East,  Europe and the rest of the world, which really tells me that Europe will not have so huge a bearing on our economy.  While a good number of OFWs are Europe based, many are deployed in the health and home care service industries.

What is directly affecting our stock market is the sentiment in the U.S. which has become fearful of the prospect that more sovereign debt crises might still arise from Europe.  The thing about credit markets is that when something like Greece turn up, creditors start reviewing all their positions.  The result is a huge contraction of bank credit to all borrowers.  I think that is what is going on.  It is the same situation prior to when Lehman collapsed in 2008.  Banks were already contracting their balance sheets.  They are doing it again today, and that is why governments are taking the slack.  It is almost a repeat of the Paulson initiative in the last days of the Bush administration, the time when they put together the TARP to keep liquidity flowing into the commercial paper market so that companies can still access finance.

The developed markets are looking bearish.  The question in my mind is whether this is a full-blown trend or simply a correction of the major trend starting from March 2009.  Even if it is just a correction, it could take the major markets much lower dragging smaller markets like ours down.  What is in store for us is likely a market that would be ranging between the recent highs and the supports that we saw sometime in February this year.  Here are some of my thoughts.

MPI is trading at the lower ind of its trading range.  It could ease to 2.70, but that does not violate the range.  We can view it within the wider range of 2.65 to 3.25.  MER could be working its narrower range of 160 to 175 compared to the wide range of 150 to 188.  AP could retrace to 15.25 given the weak sentiment plus the compulsion of investors to bank-in profits.  AGI may be seeing a trading support at 5 while its prospects to trade at 6 remains alive.

DMC could theoretically trade at 12.75 and gather strong support there.  I am pretty biased for this stock because the stories behind DMC are quite convincing – Semirara, Calaca, Maynilad, and all the infrastructure and land development projects.

EDC has been slipping although a support is showing at 4.60.  Geothermal is even going to be a bigger story with all the environmental disasters going on.  FGEN looks to be strong at 10.50 although 10 may also be reachable.

I’m not trying to promote MBT, but 52 is a screaming buy for me.  I can’t ignore the earnings strength that financials are bound to develop and MBT is the significant player in this market.  Since I like the financial sector, PNB to my mind has strong support at 28.  Of course, UBP should not experience too much a tumble; should it break 40, i think 37 should be very strong.

This dip should give followers of the URC, RLC and JGS trio a chance to get in at cheap levels.  These stocks have been quite resilient and have remained firm because of strong company fundamentals which continue to look good.

Over-all, I would be bold enough to say that this is simply a serious consolidation that we are going through.  It always happens when you least expect it.  For investors who are getting jittery, I would recommend lightening up by selling some positions that are not too deep in loss because it would be good to be holding some cash.  I can still see this market going up 20% by year’s end.  Nobody said riding the market would be a smooth ride, but it is when we learn how to face situations as these that we can get to be seasoned investors.

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