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11:30pm  Monday  30 August 2010

One good thing about being away from the market for a few days is that you are able to stand back and have a long hard look at what’s been happening.  I think the highlight last week was the hostage blunder which broadcasted to the whole world the incompetence of our law enforcement personnel, the ineptness of the local government of the city of Manila and the general lack of perspective of the national leadership.  It is not for me to belabor what those guys have done; but one thing is for sure, they bungled it up for the whole country.

What I can see down the road is a slowdown in tourism because let’s face it, tourists will not risk something like this happening to them.  My suggestion is for tour operators to stop bringing tourists to Manila and try to attract them to many other more interesting places.  In my opinion, Manila is a dump and so are the cities that surround it.  Places like Cebu, Bohol, Laoag, Puerto Princesa and Dumaguete, to name a few would provide better environment and ambiance.

Anyway, having been detached from the market for a few days, these are my thoughts.

1. The US market looks like it is not going to rally further after the recent round of earnings report because everybody is focusing on the economy.  The revised 2QGDP growth in the US only serves as a grim reminder that everything is slowing down again so there is no rush to buy stocks.

2. The threat to the global market is not as heavy as it is to the US economy.  In Europe, Germany continues to assume the role of growth engine and France, though not as strong, is not lagging far behind.  The Greek economy is only twice the size of the Philippines, so it will not create any tremendous impact.  China has managed to restrain any possible real estate bubble and is growing domestically.  India may be having to rein down inflation and could end up growing at a slower pace.  Southeast Asia with Indonesia, Thailand and the Philippines are on a sure growth path.

3. Unfortunately, the DJIA and the S&P 500 continue to be the bell weather for the global equity markets.

4. The Philippine market is at a crossroads where many portfolios are seeing huge profits which are very tempting to take.  With psychology slightly negative, it may not matter what the fundamentals are in the short run.  Psychology will prevail.

I would like to remind each and everyone who dabbles in the stock market that there will be ups and downs.  Sometimes the swings are narrow, but in critical times, they are wide.  That is why money management is very important, and I have always made a point that there should always be 10 to 20 percent cash available.  That means if you will put more cash into the market because you want to add a new stock in your position, you should either cut positions on weak stocks or top slice (take some profits) so that there is cash again in the portfolio.

There have been concerns expressed about DGTL.  I mentioned in the past that this is a recovery stock.  DGTL is a stock that has languished for 10 years and is only coming back now.  No wonder Telia of Scandinavia got fed up with the stock and has gotten out.  I do not know how big their position is, but no matter how large it is in local terms, it is something that they’ve made provisions for already.  They can absorb whatever loss they are taking.  The real question in my mind is whether or not the business of DGTL will continue to do better, and the recent trend in market share of the telecom industry tells me it will.

I am not going to convince people to hold on to this stock.  My suggestion is that if you cannot live with prices going down, sell it immediately.  No use losing sleep over it.  For those who have the holding power, I’d likely wait for it to come closer to 1.20 and perhaps double my position.  I see a company that is committed to building its business.  The other telcos (Bayantel, Extelcom, Liberty) have just stuck to their niches probably waiting to be bought by the bigger players.  DGTL poured new money to get to where they are now.  Tell me, does that sound like a company that is not seriously trying to be a serious big player?  PLDT makes over Php 40 billion a year and Globe in the neighborhood of Php 20 billion.  DGTL will likely make Php 300 million this year; do you think there is a chance that this could go up to Php 3 billion next year?  You tell me.

For the other stocks, perhaps we could discuss them as the week wears on.  In the meantime, I think that people should be reducing stock exposures and raising cash for the time being.  There might be rough sailing ahead.

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