Outside the Box
The Philippine Stock Exchange (PSE) closed at a historic high yesterday with the Composite index hitting 4,421. It’s about time. No excuse for it not happening sooner.
But I absolutely knew it was going to happen yesterday. In fact, any “expert” could have easily figured it out. All you had to do was watch the Azkals destroy Sri Lanka on Sunday at Rizal stadium. The resilience and dominance of the Philippine soccer (ok, football!) best illustrates the Philippine stock investor as much as anything else. Stock investors battled their way through a huge amount of selling these last three months at the 4,300 level.
Stock-market “experts” told me I have been heavily buying stocks for the last four months because of what is happening in Greece. It is as if the first thing I say to my wife every morning is, “Can I have some coffee dear, and what is the overnight spread on Greek 90-day bill against the 180 Eurobond?”
Any commentator that talks about Greece should be required by law to include one sentence why the Greek debt situation negatively impacts on the Philippines.
Yesterday’s market action was precisely what we want to see at the beginning of a long-sustained rally. The market opened strongly. Some profit-taking came in at mid-session although there was not a flood of selling. The close was firm taking prices off their lows. One hundred issues traded higher and volume was a rampaging P7.2 billion. This is totally good stuff for investors. Now back to the reasons for all these wonderful things happening at the PSE.
A comment about stock trading said that now, investors have a positive outlook about the Philippines for the second half of 2011. In truth, stock investors have been positive since October 2008 when the market reached its recent low and since then the index has risen 120 percent from 1,800. The only people who have not been optimistic about the long-term future of stock prices are the “experts.” Ask any investor who bought Ayala Corp. at P150 (now P320), San Miguel at P40 (P119), SM Dev. Corp. at P3 (P8.50) or Megaworld at P0.60 (P2) back then if they have been pessimistic.
Ask any investor who bought these stocks 12 months ago if they have been pessimistic: Semirara Mining at P50 (P200), Security Bank at P50 (P100), DMC Inc. at P15 (P40), and Jollibee at P60 (P90).
While a favorable view of the future of the country does play a role in moving stock prices higher, particularly at the beginning of a rally as in 2008, other more basic factors come into focus at the point where we are now.
Talk to some bright people and you will get a negative response about the next 12 economic months. Economic activity is moving but at a pace that is not exciting. The government’s economic progress is dismal, no matter what the press releases say. Nothing has been done with the much-repeated Public-Private Partnership Program. All talk and no action with something that could have added at least 0.5 percent to gross domestic product. One department is sitting on tens of millions of dollars of foreign direct investment that they refuse to approve. Finance sounds like a branch of the US administration talking nothing but increased government spending and higher taxes.
While the economy is no great deal right now, investors are sitting on plenty of money. There is a tremendous amount of excess personal cash right now and the only investment that feels comfortable is the stock market. Sort of like the US. Frankly, no one trusts the US government to make economic sense and they want their money to be liquid as in the stock market. Nearly the same attitude applies here in the Philippines. Bottom line is that there is an abundance of money to fuel a sustained stock-market rally.
Putting your money in a bank is completely foolish from a rate of return basis. The real interest rate, the difference between what you earn and the inflation rate, is zero.
Property is still a good buy but not as a buy-low-sell-high type of investment. Buy a condo and rent it for current income, not capital gain.
The market is going up and will continue to go up (my forecast is 4,800 to 5,200 long term) because the corporate value of listed companies is growing at a much, much faster rate than the economy.
Finally, look at the front-page chart of the PSE and the peso. The peso is up 1.5 percent from the recent low. The PSE is up 7 percent in the same period. Now tell me again about Greece.
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Tuesday, 5 July 2011