ROTATION, FLOATATION

10:10am  Thursday  1 October 2009  Philippine Stock Exchange Index  2808.04 In spite of falling stock prices in New York overnight, investors were rejoicing because the Dow and the S&P just ended their best quarter in 11 years.  In other words, this was the best quarterly performance since the initial stages of the “dot.com” boom of the late nineties.  Indeed ist is one for the books.  I  guess from running scared at the end of 2008 to total desolation in 1Q2009, investors had come to the realization that it was not yet the end of the world.  Life goes on and markets have to thrive. The Philippine market had a decent quarter – around a 15% gain.  However, the last 2 months – from end-July to end-September – our broad market hardly moved although we had a lot of opportunities in second-liners and small cap stocks.  I do not see that as negative because looking from the perspective of capital preservation, most large cap stocks consolidated their gains at the higher end of the bull run from March to the end of August when the index saw a intraday high of 2906.  Of course, in the last 2 months, our market has underperformed practically all global markets. Nevertheless, because fundamentals remain intact in the Philippines notwithstanding natural and political calamities, I hear that our market may be the object of regional rotation buying by foreign fund managers.  At least, that is the recommendation that I’m hearing from a major regional investment bank.  It makes a lot of sense when you think of it.  In the last 9 months, our market had seen the exodus of foreign funds as many sold into the markets strength to cut their previous year’s losses.  This time around  it becomes a new ball game, just like marking your positions to market – it makes you look forward. Based on such  an outlook, I think that the large cap stocks are about to have their day again – as the saying goes, every dog has its day.  Judging from how TEL has been behaving, I think that dog is about to turn fox.  I am also quite constructive on AC and GLO simply that these are stocks that foreign funds buy when they want Philippine exposure.  Let’s not forget the BPI and MBT; my personal thinking is that MBT will break out at 40.  You can stick around to find out. I have recently tried to follow SMPH and SM because these stocks are so resilient despite challenging valuations.  Yes they look expensive at first glance but they have so much critical mass in the domestic economy.  Now, they even have a China play.  Incidentally, MBT has the advantage among Philippine banks to have a full banking subsidiary in China. In the next few days, global investors will be extremely cautious because 3Q earnings will soon be disclosed and no one would like to be hit by poor earnings results.  In our market, I think that having lagged other indices over the last 2 months, downside remains limited.  It takes a brave person to buy when prices are declining.  The way to mitigate that is to put sell stops below so that you can come back and fight another day.  My view remains that going into 2010, many of the listed companies here will benefit from the enthusiasm of the elections.  It offers a promise of new hope.  What are market expectations after all but a hope that the future will get better. Have a great day! http://guscosio.wordpress.com