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10:20 am  Friday  26 August 2011

I have been quite busy these past few days that I haven’t had a chance to share my thoughts.  I am sure that many are wondering if the game is over on LC/B.  While I think there is a lot more juice in the stock, I normally do not argue with market action.  Yesterday, over 1 billion shares traded with value of Php 1.8 billion.  That is a lot of people being shaken out from a high of 1.80 the previous day to yesterday’s low of 1.60.  What I am afraid about is that the confidence in the stock might have been shattered by the somewhat panicky behavior of the market.  Of course, one critical factor was the $100 plunge in gold prices which puts some doubt in people’s minds whether the gold bull bought LC/B for its value in the index since the weights were very small.has slowed down.  Another was the removal of LC/B in the PSEi; although I never really thought that people Nevertheless, there was excuse for people to take profits at these levels simply for cash management purposes.  Another possibility is the call on margins by brokers on the stock.  When a stock falls sharply, many of those who buy on margin get called to pay up or sell down.  To be transparent, I did sell my LC trading position yesterday and managed to get out at relatively higher prices.  I think people should now be careful about being whipsawed by the flows on LC/B.  The key is not to panic but to carefully manage cash, i.e. sell and buy to make sure that there is enough cash in your portfolio.  Nevertheless, I kept the positions that I bought at the foot of this rally since it is way below where the market is now, and I am confident that LC will not go back to that level again.

Other mining shares such as PX, MA/B, ORE and NI were also influenced by the sell off.  I believe it was AT that was steady on support buying and positive flows.  NIKL was also pretty steady, but with tendency to be soft.  In retrospect, I think profit taking should always be expected; so we should not really be disappointed with yesterday’s mining sell off.  In fact, we should expect bouts of profit taking, even as massive as the one we saw yesterday, from time to time.

Is the story on Philippine mining sector stocks over?  Far from it!  I think the story is just in its initial chapters.  The good thing is that except for PX and AT, foreign funds have barely scraped the surface of the mining story.  This means that the emerging mining stocks like MA/B, ORE, NIKL, NI, BC and the like have some ways to go.

In my opinion, yesterday’s carnage was good for all of us; it gives us timely reminder that we should temper our greed.  More than that, it teaches us how to take a longer term horizon so that we can manage have good diversification in our portfolios and be more disciplined in our cash management.

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