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11:38  Monday  3 January 2011

What do I reckon is up for us in 2011?

I cannot help but recall the headline on the Business Section of the Philippine Star Sunday morning.  It emblazoned the phrase “SDA funds parked in BSP vault reach P 1.22 Trillion,” a fact which many in the market place was already conscious of except that now there is a definite amount mentioned.  Apparently, there is a clamor for some quarters for the BSP to lower interest rates on SDA so that funds could be freed up to bankroll productive projects including infrastructure programs by the Aquino administration.

How is this significant to the market?  I say extremely.  The immediate effect of a cut in SDA rates would be a deluge of investments in blue chip stocks.  You see, most of the money in SDAs are from the very wealthy and the very liquid who do not have very strong risk appetites.  Actually, I think many of them are simply too narrow minded about looking at constructive direction of investments in the Philippines.  many of our high net worth countrymen have been used to living on interest which had been very high in the past.  Many of them were also used to seeing the US dollar simply appreciate every year that they can comfortably put their money in interest bearing instruments and get satisfactory returns.

I do not really see how people could turn a blind eye at local equities.  These past two years have simply been phenomenal and I think the trend has just taken hold in 2010.  In the year that is starting, a positive environment coupled with very low interest rates could bring stock prices of at least 100 stocks in our market to greater heights.  It may be bold for me to say that but I think when BSP cuts SDA rates by one percent, people will have no choice but rush to stocks.  First it will be the bluest of chips, so I suggest that people hold on to their TEL, MBT, AC, BPI, SM and the like.  Next it will be the stocks with good recall like JFC, JGS, URC and the like.  Then it will be those that look cheap.  Of course many will look at mining because in decades past, mining had earned fortunes for a lot of the older people.

I cannot but emphasize the power that a cut in SDA rates can unleash toward our equities market.  That is not to say that our market will simply be liquidity propelled.  I certainly have some economic fundamentals that I work with based on very reliable research which is provided to me by a very deep think tank which for prudence sake I cannot mention.

From a global perspective, while there will be a drag coming from Europe as a whole, North America has started to show signs of brewing strength.  East Asia also remains in its growth path although China is showing some signs of growth slower than the double-digit path it has marked over the last two decades.  My senior economic analyst says:  “Given only a minor slowdown in China from 10.3% GDP growth in 2010 to 9.0% in 2011, and the U.S.  Likely to perform better-than-expected in 2011, we think that the export sector will continue to provide fuel to the economy, albeit slower at 12-15% growth for 2011.  Electronics, minerals, and fruits exports should continue to pace the pack.”

As I write, the Dow is up over 100 points; I think the January effect is going to be pretty much in place. MER was the top performer in value turnover today; it also closed up 17 or 7.5%.  Why am I not surprised?  Probably because the economic numbers that will be coming out soon will reveal that industrial production is growing at quite a robust pace which means electricity use will be rising faster with system loss is being reduced.  We use MER as an industrial indicator because it supplies electricity to the region which produces 50% of the country’s GDP.  Obviously, MPI is going to benefit and that is why it is second in value turnover and up 26 cents or 6.7%.

Expect more from the high-profile stocks and blue chips in the next couple of days.  I do not know yet what to expect from the RSA stocks but CYBR looks like it could run above the curve since it is still a penny stock and many players will be willing to punt it.  Just be careful that you are not the last man out.  I believe women make smarter traders, so they’ll know what to do ahead of the men.

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