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9:40  Thursday   29 April 2010   Philippine Stock Exchange Index  3299.42 (up 14.64 points from Wednesday close)

After the volatility over the past two days, perhaps the local market will attempt to stall the up trend that we have had since February.  There are very strong stocks out there that have been impervious to the shock that the global markets got from the credit downgrade of Portugal and Greece.  The major markets were whacked by the downgrade supported by the Goldman Sachs sideshow.  Investors got worried that attention would be taken away from the strong earnings report from 79% of S&P companies that have exceeded analyst expectations on their 2010 first quarter earnings.

It is not surprising that people should pocket some profits when signs of trouble arise.  The market’s view of the value of prices is a process of never-ending change.  The differences of opinions expressed by investors through their buying and selling activity is what results to a collective wisdom of the market place.  It is not so much that there are forecasts and views given by personalities such as Nouriel Roubini or Marc Faber.  It may not even be the influence of astute investors such as George Soros or Warren Buffet.  At the end of the day, there is only so much that these market movers can do.  The final arbiter of stock prices is what the breadth of investors decide to pay for them.  It is dependent on how people vote stocks with their money.

Locally, investors have been convinced that the place to squeeze out returns is the stock market and that is why local money has been strongly engaged in stocks.  Even if you stick it out with just one stock, you would have done much better that keeping it in any government fixed income bond or time deposits in the banks.  Some examples are AEV, AP, DMC, MBT and PNB, just to name a few.  If you held these stocks from the beginning of the year, each of these stocks would have returned at least 20% regardless of how the global markets behaved.

Going back to the very influential U.S. market, many analysts believe that earnings of the S&P component stocks would be growing by 29% this year.  It is no surprising then that with every major sell-off that happens, a comfortable base in prices is built.  We saw this when the first news of Greece and the rest of the European PIIGS broke out in the latter half of January this year when stock prices slid until the middle of February.  But what did we see after? Was it not a sustained rally until the second wave of bad news about Greece and the problematic Portugal broke out again.  This gave investors reason to consolidate their gains by cashing in on some stocks.

The question that remains is whether or not to abandon this market or at least dramatically decrease exposure.  My opinion and my money are of the view that we will remain engaged.  I see a lot of value remaining in stocks like TEL, FGEN, PX, and MER at present prices.  That is not to say that the other stocks should be ignored.  I just think that from yesterday’s price action, these stocks are looking like bargains today.  For stocks like MBT, URC, RLC and PNB, I think the trend is still intact.  i just see them moving sideways in the near-term.  Two stocks that look to be steaming ahead above the sum of all fears are DMC and PIP; there is probably something going on in these stocks.

Anyway, yesterday, I thought that the bloodbath on Wall Street would result in similar hemorrhaging here, but it did not.  I do not think that local investors were like ostriches burying their heads in the sand.  I think they were pretty clever coming to the conclusion that stocks are still the place to be.

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