NOT ALL THAT GLITTERS IS GOLDMAN’S
10:00 am Monday 19 April 2010 Philippine Stock Exchange Index 3208.05 ( down 61 points from Friday close) The 125 point drop in the Dow is what I think is a classic example of buy on expectations and sell on news. A large number of investors had been expecting better than expected results from the blue chip companies that normally report ahead of the less followed stocks. Companies like Alcoa, J.P. Morgan, UPS, GE, BofA, the early results were above expectations. So why did the market sell off because of the news of a Goldman Sachs scandal? For one, Goldman’s are a very powerful force in Wall Street. It influences a lot of fund managers through its sales and trading of stocks and bonds. It also directly moves the market through the firm’s proprietary trading positions and the various hedge funds that it either owns or sponsors. Bottom line, what I see is the market looking to bank some profits before going into the next profit cycle. In our local market, We have been seeing some profit taking as well. On last Thursday’s trade, we saw a bit of selling which took the index down 21 points. This was followed by another wave of selling taking out another 13 points off the index. Actually, we should not ignore the price actions the days prior to this decline. On Monday last week, we had a very strong rally which took the index 38 points higher. However, on Tuesday and Wednesday, the PSEi got stuck at 3299 – a foreboding sign that buyers are being reluctant to commit at those levels. Anyway, our market saw profit taking ahead of Wall street for our own reasons. Nevertheless, I do not think that local investors are impervious to what is going on in the major markets. Asian markets have started to slump due to the anxiety brought about by Goldman’s facing U.S. SEC indictment and ongoing probes in Europe. Remember that a few weeks ago, Greece revealed that Goldman’s had engineered financial products for the country to disguise its digression from the standards imposed on the members of the Euro – the common currency of member European nations. Something like this could be very disruptive to the markets. Furthermore, it tends to make investors suspicious of the recommendations they receive from their investment advisers. Trading desks all over the world likewise will be taking a defensive posture which will tend to contract value turnover all over the world. Short-term, this looks bearish for the big picture. For the domestic picture, things have not changed much is as far as company fundamentals are concerned as well as for the underlying macroeconomic fundamentals. The political picture has also not changed but because of recent global market events, there will be reason to provide more focus to the election factor. Until today, investors have been comfortable that elections will go smoothly despite the various hoopla brought forward by many devil’s advocates in this country. Personally, many of our countrymen appear to prefer the company of devils that the only position they wish to take on national issues is that of the devil’s. At the end of the day, our country has had a good history of resolving political issues peacefully. It just takes time. So whether the various election scenarios play out, there will be a Philippine economy chugging along after May 10 and life and markets will go on. In the meantime, I would advise careful following of strong stocks. Remember that our economy will continue to hunger for electricity and power so keep an eye on your favorite power producers or distributors – AEV, AP, FGEN, EDC, MER, DMC and SCC. Watch out for the banks as well because some are looking stronger than ever – MBT is one and PNB is another I continue to like. It is helpful to remember also that you should enter at levels where you can handle the volatility. There is no sense putting out money then losing sleep over it. I think that the fact that markets are consolidating – no matter the reason – is constructive. At the end of the day, in a situation like this, we all win.
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