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by Gus Cosio

10:00am  Friday 21 May 2010  Philippine Stock Exchange Index 3162.68 (in panic mode)

The 376 point drop in the Dow Jones Industrial Average will definitely cause further panic in Asian markets and the Philippines will not be spared.  The global indices are in levels similar to when the first news of the Greek fiasco was revealed in January this year.  I believe it will be a continuing concern for the rest of 2010 and for early 2011.  Such a mess is not easy to clean up.  While the best way to solve this problem is to kick Greece out of the monetary union, it may not happen yet for some political reasons.  I believe, however, that hardliners in Germany will argue the point strongly because German taxpayers who are among the hardest working in Europe will be bearing most of the burden.  I, for one, would agree.  Why should one country’s productivity pay for the profligacy of another.  I do not want to argue the point further, I just wanted to voice out my conservative opinion.

In our market, I also feel that I am conservative.  I would not want to take unreasonable risk for the sake of impressing or shocking others.  My view of investment conservatism is founded on appreciating the appropriate fundamental information.  In as far as the value of stocks is concerned, the bottom line is earnings per share and the quality of its sustainability and possible growth.  Combined with historical and prospective return on equity and a stock’s net asset value.  all of these factors should tell us conservatively what a company’s stock is really worth.  The price in the market will be a function not only of its fundamental value, but also of the sentiment that the market attaches to it.

Given this point of view, is there really reason t panic if you are holding stocks with sound fundamentals?  Each trader will have a different answer, so i will not even offer mine.

Anyway, I think a few stocks may be worth the picking in this downturn, perhaps today or maybe sometime next week.  MBT below 55 should be an excellent buy.  DMC at 14 or below should have a good pay-off before 2010 is over.  This downturn should also be a good opportunity to buy AP and AEV on the cheap.   RLC and URC were attractive at last week’s prices; they should be more attractive if they decline by at least 5%.  FGEN and FPH also at 5% below yesterday’s close present compelling value.  For a stock like PNB, nothing fundamental has changed.

Overnight, I read a feature on an ongoing hedge fund conference in San Francisco, CA.  The consensus was most hedge funds were overweight in liquid assets.  By liquid assets, they were referring to the more liquid S&P 500 stocks.  This is probably why there is a sell-off in the DJIA which represents the largest of the S&P stock roster.  Some of the hedge fund speakers were also saying that if everybody was overweight in liquid assets, illiquid assets may be very cheap.

From a global perspective, the Philippine market is one categorized as illiquid.  Keeping in mind that the money flow is going in the direction of Emerging Asia, is it a long shot to bet that funds would be coming our way? We just have to hold our breath.

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