Thursday, 23 June 2011

Frustrating PSE trading

Business Mirror

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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Tuesday, 21 June 2011

How not to handle foreign affairs

Business Mirror

The Philippine government is far out of its league in dealing with both China and the United States.

The first move in the dispute with China (and others) over the waters of the South China Sea, the Philippines turned to the 60-year-old Mutual Defense Treaty with the US. The US response was predictable: Not our problem.

When the government pushed on the matter, the US government blew the dust off the treaty, read it, and decided that, well, maybe there was something to the Philippine claim of mutual defense. The specifics became so confused that one comment said the treaty could only be used if another country invaded the Philippines on the Pacific Ocean side, between PHL and the US.

Ultimately, the US reply to the Philippines invoking the treaty was “Well, maybe I guess. But get back to us when it happens and we will give our final answer.”

Actually the US response came a few days later. The US State Department issued a travel advisory for the Philippines. The travel advisory was complete nonsense and was only because of the treaty issue. The “warning” told US citizens to stay away from Sulu and parts of Mindanao, mentioning that “clashes have occurred between lawless groups and the Philippine Armed Forces throughout Mindanao, particularly in rural areas.” Also, “US citizens should exercise caution when traveling in the vicinity of demonstrations since they can turn confrontational and possibly escalate to violence.”

I wonder if the US issued a similar travel advisory for Vancouver, Canada, cautioning its citizens to stay away from drunk, drugged and sore loser Canadians after the championship ice- hockey games? What a disgrace.

Then the US ambassador to the Philippines lectures a group of Filipino judges and prosecutors, expressing “displeasure” over the country’s performance in the battle against human trafficking. His advice was for the Philippines “to make sure that the ports were well guarded and ensure that no one got aboard to end up somewhere else only to be abused.”

This is coming from a country that admits that some 12 million to 15 million people are illegally in the US, some 5 percent of the total population. And that the US government’s own statistics show approximately 15,000 women and children are sent to the US each year by the slave traders.

But none of this is important. The message to the Philippines was simply, watch your mouth and do nothing to insult or show any disrespect to your Uncle Sam.

It was like the schoolboy suddenly thinking the class bully is now your friend because he hasn’t stolen your lunch (one-sided trade agreements) or punched your face (interfering in national politics) for a while. Pathetic.

The Philippine response to the Chinese government is even more infuriating. The initial call by one politician to boycott Chinese goods was simply ridiculous. First, the Philippines has a trade surplus with China ($8 million), meaning we sell them more than they sell us. So who gets hurt more if the trade between the two countries is reduced?

China exported $1.5-trillion goods last year. The Philippines imported $7.4 billion, or less than 0.5 percent of China’s total exports. Yeah, not buying Chinese goods is certainly going to hurt them. They may be so upset they will just give the Philippines, not only the South China Sea, but maybe Hong Kong, too, where, by the way, 150,000 Filipinos are employed.

Filipino companies like San Miguel have substantial business interests in China that have taken decades to develop so that Filipino companies do not have as difficult a time in dealing with the various Chinese governments as do other nationals. Those investments, much more important to the Philippines than to China, could be drastically impaired by any sort of trade disruption between the two countries.

China invested a scant $100 million in the Philippines last year in comparison with China’s total overseas investments for 2010 of $59 billion. Maybe the country might want to figure out some clever and beneficial alternatives to doing business with China while protecting national sovereignty and interests rather than economic saber-rattling.

But no. Like someone who believes that life and important decisions have a video-game reset button, the Philippines sends the BRP Rajah Humabon to the area. Senate President Enrile had this to say: “That’s a symbolic act of the country to show that in our own way we will defend our rights. Let’s not go any farther because we have no capability to equalize the balance of forces.” Senator Enrile was being polite. It was the act of a child holding his plastic sword (made in China) above his head, threatening to vanquish the bad guys. Pathetic.

Speaker Belmonte is going to take a small group of House members to China to discuss the issues. Sensible.

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