OUTSIDE THE BOX
The last two months have been a difficult period for investors on the Philippine Stock Exchange (PSE). While the main PSE Index has barely changed since the beginning of May, profitable trading of major companies has been frustrating.
While the main index has been almost flat since May, important issues like Ayala Corp. are down 5 percent. Other favorite stocks like Megaworld are down nearly 20 percent. The list of losers is extensive, crossing all industry sectors and all sizes of companies. It has been tough to find where to put your money into.
The peso has almost steadily depreciated over this period. While similar currencies are going up against the US dollar, the peso stays undervalued, driving fuel and imported goods costs higher. A weak peso is not good for stock prices.
It might be the fault of the foreigners selling Philippine stocks but looking at a week-over-week basis, the foreigners have held much steadier in this market than might be thought.
The US stock market has been in trouble for some time. The first thing most traders and brokers do in the morning is to check the action in New York, and that action has not been favorable in the last few weeks. What investors should do is first look at the company news to make an analysis of local stocks. But old habits die hard and financial colonial mentality is a hard mindset to kill.
The government has been in an apparent state of confusion for several months, looking for direction in its economic policies. Investors need to know what the government plans are and where the push is going to be for the economy. We seem to be going around in circles, with a lot of talk about moving ahead and very little talk of where “ahead” is.
However, beneath the PSE Index is another story and why there should be a lot of optimism for the future.
Quietly and without headlines, the PSE All-Share Index reached a historic high on April 25th. Since then, this index has corrected some 6 percent. This is a very small drop from the all-time high and is normal.
If you consider the underlying corporate value (earnings, earnings growth and intrinsic value), the posting of that high indicates that the future for the companies listed in the exchange is favorable. Therefore, we should see advances in stock prices in the weeks and months to come.
In the first week of April the PSE Industrial Index also reached a historic high. Those issues are also down about 6 percent. The same analysis applies here as with the All-Share Index. The fall is not a big deal.
The two sectors that have been very disappointing are the property and financial stocks.
There is some reason to understand why the banks are down. While earnings are good, the Bangko Sentral is sending mixed signals to the future for both the peso and interest rates. Nonperforming loans are down and lending is going up. However, I think the real reason that investors are staying away from the banking sector is that there is little corporate excitement here.
Traditionally, the only reason to own banks stocks is for the cash dividend. But we know Filipino companies avoid paying dividends to shareholders as if it were some sort of rule. Evaluating the earnings of a bank is done differently than for other companies. If banks listed in the PSE are not doing mergers and other headline making corporate moves, investors grow weary of stock prices going no place. Then they sell out. And prices go down. Bank stocks are supposed to be boring. The problem is that some of the most important and largest companies on the PSE are the banks.
The property stocks are the issues that are dragging down and keeping the stock exchange from really booming. The property index has been flat to down since August 2010. The index hit its historic high back in 2007. While it might be reasonable to assume that our local property sector is feeling the fallout for the global property meltdown, it really makes no sense.
There is not a real-estate bubble in the Philippines. Projects are still being planned and built as if nothing happened in the US and Europe. Lending for housing is widely available, and consumers are still very interested in owning the projects that are on the market.
Prices have been stalled because the major property companies are financially positioning themselves for the future, raising cash and restricting their finances, and all that is a good sign.
Hang in there, PSE investors. I believe prices are going higher very soon once we get through this spot of bumpy road.
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Thursday, 23 June 2011