Friday, 10 September 2010

Golden era and a massive bull market

Written by John Mangun
Outside the Box
Business Mirror

They say if you live long enough, you will have seen most everything happen, and almost nothing can surprise you anymore.

If you have followed the Philippine Stock Exchange (PSE) for the last 20-plus years like I have, you have seen quite a lot.

While in 1986, the London Stock Exchange moved trading from face-to-face floor transactions to trading by computer, the Makati Stock Exchange was still posting prices on a blackboard using chalk.

And then we saw the initial-public-offering (IPO) days fueled in large measure by the government’s decision to sell Petron. Part of that IPO was the beginning of the small investor program where buyers were limited to 2,500 shares, if I remember correctly. Clients walked into their stock broker’s offices, hands filled with subscription forms filled out in the names of maids, drivers, yaya, and messengers. These folks were buying amounts of shares equal to their annual salaries. Of course, no one ever questioned the legitimacy of those purchases. And it took years before all the “small investors” made any money from the stock.

At the same time, one name-brand privately owned family company also went public. But before it sold its shares to the public, it declared P130 million in dividends to the private owners. The new buyers had a company with almost no cash reserves, which kept this company from any sort of expansion or improvement for a decade until those depleted cash reserves could be built up again.

We witnessed the backdoor-listing craze when dormant companies were taken over and the stock price flew, then calling them “rocket chips.” Anyone remember BW Resources?

The PSE has generated some great events and stories. Alaska Milk shares rose dramatically the day after its PBA team won a championship. And then there was the front-page rumor that the chairman of a very large property-development firm had cleaned out the company’s bank accounts and fled to Thailand, the week before he appeared at the annual stockholders’ meeting.

This is the PSE, where truth and fiction come together like the conversations at a local beauty salon.

But the PSE is still a stock market, and a stock market will always and forever offer surprises.

Imagine my surprise when I read this headline from and picked up by our local newspapers: “Philippine stocks’ bull-market rally to be ‘massive,’ Macquarie Group says.”

Macquarie Group is an Australian company that is, according to its web site, “a global provider of banking, financial, advisory, investment and funds-management services.” They have been around since 1969, so we know that we are in the presence of stock-market “experts.”

From the article: “The benchmark index will reach 3,900 in the ‘near term’ as economic expansion and earnings growth of 23 percent this year push Philippine stocks into a ‘massive bull market’…and may extend gains to 4,500 in 2011. The Philippines is at the start of a massive bull market.”

Now let’s see. Macquarie is calling an 18-percent price move a “massive bull market.” So tell me what the move between 2008 and 2010, which saw the PSE index go up 100 percent, if not a “massive bull market.” The “experts” at Macquarie apparently have not been paying much close attention to the PSE during the last year.

Macquarie is recommending buying Megaworld now that it is P2. Where was Macquarie’s buy advice when Megaworld was trading at P0.60? They like banks, property and utilities, companies sort of like JG Summit; no, exactly like JG Summit. But they are calling for a buy at P19.90, when you could have bought at P1.60 less than two years ago.

Another international broker, CLSA Asia-Pacific Markets, says (from the BusinessMirror) that, “We would look at accumulating stocks during this cyclical correction” if the market goes to the 3,400 area. Great call from the experts. At 2,000 going to 3,800, the PSE wasn’t worth it. But if it falls 10 percent from where it is now, it is a great opportunity.

It is very tempting to call these people fools, but please do not do that. They may save you a ton of money, because I have been around long enough to have seen all this before—twice.

In what month did the 1990 bull- market rally end? January 1997. What month was foreign buying the heaviest? January 1997. In what month did the 2003 bull-market rally end? February 2007. What month was foreign buying the heaviest? February 2007.

From the September 7 issue of the Daily Inquirer: “Foreign investors continued to make local stocks sizzle, contributing about P1 billion in net buying for the day.” Manila Standard: “PSE president Val Suarez said Wednesday foreign buying in July alone rose 40 percent on year.” Xinhua News Agency: “Trading activity was buoyed by the renewed interest of foreign investors in the market. In fact, the share of foreign investors to total traded value reached 49.7 percent.”

Do not misunderstand me. There is a lot more room for prices to go up, and they will. But when the foreigners start saying the things like I quoted above, it is time to start some serious and careful thinking. The foreigners have been wrong about the Philippines and the PSE before, a lot.

And it sure would be nice to see a large amount of foreign money waiting to buy locally owned shares for a big profit when the PSE hits 4,000. It’s called an exit strategy. You cannot sell at a high profit, unless somebody is willing to pay you the high price.

So let the PSE fiesta continue for as long as it can, and enjoy it all you can. But remember, at a time in the future, someone is going to have to pay the bill for all the stock-market beer and pulutan, and it sure would be nice to give the check to investors like Australian Macquarie and majority French-owned CLSA.

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