WHAT’S GOIN’ ON?
2:10pm Thursday 11 February 2010 Philippine Stock Exchange Index 2908.88 ( +1.81%) As I was on my way to work this morning, an old Motown tune was playing in my mind. For those of you who still remember the late Marvin Gaye, he recorded a hit in the early seventies entitled “What’s goin’ on?” – a song lamenting the social problems arising from the Vietnam War. That was almost a lifetime ago, but what grabbed me was the term itself – What’s goin’ on? When I was working my trading desk in Hong Kong 25 years ago (yes, I am Jurassic), my boss sitting in Tokyo would call in the middle of the day to ask “What’s goin’ on?” As a securities dealer, I had to have the answers. I had to be able to say what my roster of investors were doing and what kind of feedback they were giving me – whether they liked the market or not, whether there was an issue they were looking to buy or sell, whether they were waiting for good timing to come in or whether they are just looking to sell and duck in the trenches. In essence, what is important in the market is not so much what the demagogues are saying. I remember what the legendary portfolio manager, Peter Lynch had said: “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.” What really matters is what people are doing with their money. Let us have a look. After selling positions in the market from 15 January in reaction to Obama’s plan to restrict U.S. banks and further selling on 1 February when the Greece credit crisis blew wide open, selling only stopped on 10 February when Germany indicated that they will help in a rescue initiative. Philippine investors were right on the heels of this development paring down positions. With two days of gains in stock prices and over 100 points recovery of the index, I can only observe that investors have started buying back positions that they had dumped earlier. On a per stock basis, it is obvious that people sold TEL from 2775 level to 2500 where buying emerged. Punters took profits when TEL rose to 2555 yesterday, but at 2520, buyers have come back. If you ask me, those buying today are strong fundamental buyers who are willing to put out cash for value – a headline stock that is trading at 12.4 X trailing earnings, offering dividend yield of 8.21%, and showing a return on equity of 32%. Am I seeing it correctly? When AC got sold down to its 6 month low of 260, Ayala themselves started to buy their own shares in the market. It as never been a cheap stock, but if they are willing to put cash into it, that is telling something about AC’s value. SM had not been much of an exciting stock, but in the latest downturn, this stock was holding its own. Today, as yesterday, it gained quite creditably with even rising volume indicating more cash being put to work at SM. With MPI, we saw a lot of investor nervousness, but in the last 3 trading days, anxiety looks to have developed into a lot of confidence. MPI was among the highest value turnover in the last 4 trading days with the price recovering strongly. The strong banks – MBT and BPI – are seeing the same reversal of sentiment although a great deal of the cash can be measured as going into MBT. PNB is also seeing increasing value turnover with a modest recovery in price. So what’s goin’ on? Well, what it looks like is after a healthy profit taking bout resulting from anxieties over international events, investors are getting their heads together and tucking away stocks of value. I think form here on in, investors will try to buy the dips, after all the local business environment together with the rest of Asia is in much better shape than the west.
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