TIME TO TAKE STOCK by Gus Cosio
First of all, i would like to tell all of you that for reasons unknown to me, I could not post on this site. I could only access the comment box where most of you post your comments. Anyway, I am happy that I can share things again today. First of all, there are very few players in the local market who are not as pleased as I am that the PSEi has broken its all time high. We are now trading in uncharted territory. That is not to say that I am no longer bullish in the local market. Far from it. I continue to stress that investors should prepare to increase equity exposure even more, now that we are breaking new ground. It has become to be a new ball game for the PSE which I feel has graduated into a bigger league. Let us look at it from the top going down. What are the fundamentals, macroeconomics-wise? 1. We have a much bigger economy now than what we had in 2007 when we posted the previous high. Remember that the Philippine economy did not go into recession. It only slowed down and that is the reason why locally listed companies did not have to face any capital erosion. In fact, cash balances of Philippine companies remain high. 2. We have more money on hand today than in 2007. If you remember the SDA level with the BSP in 2007, it was roughly around Php 500 billion. Today, it is pushing Php 1 trillion. People have been extremely cautious with their cash and only a few have managed to put it to real work – as in the stock market. 3. Companies have better bottom lines today than 2007. We have been seeing corporate earnings rise by 10 to 15 percent. Power and utilities companies have been experiencing even stronger growth. So have some consumer shares. 4. We have a better political and business climate than we had in 2007. Remember that they were still looking to impeach GMA that year except many proponents already gave up. They, however, went for investigations such as the NBN deal and the fertilizer scam among others. Today, in spite of the set-back brought about by the August 23 hostage crisis, there is still a lot of political capital in the hands of Noynoy Aquino. There is a lot of business enthusiasm from both domestic and foreign sources. 5. More investors from outside the country are looking to allocate investments to Philippine stocks today than there were in 2007. If you look at the TIP (Thailand, Indonesia, Philippines) theme, the almost identical performance of the three markets gives us an early indication of how global capital is moving. 6. More locals are getting involved today than in 2007. Due to heavy losses taken by wealthy investors during the sub-prime crisis, Filipinos have realized that investing abroad is not a sure-fire strategy anymore because one has very little control of investment decisions. In contrast, if you play with your money domestically, it is easy to cut losses before they run your portfolio to the ground like the foreign fund managers did to them in 2008. 7. The outlook going forward is better today than it was in 2007. We have had 2 quarters of growth and while the world is wary of a second dip in the global economy, this in 2007, the crash was imminent. This was because there were asset bubbles everywhere – US, Europe, China, hard commodities, soft commodities. even crude oil was headed for ear-piercing levels in late 2007 going into 2008 when it peaked at $150 a barrel. Today, asset prices are low but are already at rock bottom in as far as property prices are concerned in the developed world. Even property prices in China have eased a bit. Oil is having a hard time breaking above $80. What I would like to say is that things are different today tan what it was in 2007. At that time TEL was above 3000 and GLO was above 1100. Today, TEL is only 2400 in spite of a core bottom line 15% higher than it was in 2007. Even AC was above 500 then and ALI over 20. What has happened is that the market has diversified in stock allocation because there is more to choose from today that 3 years ago. Now tell me, is that not good for stocks as a whole.
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