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March 19, 2004

Ho, Ho, Ho and Sexual Advisers

Before we speculate on Mike Arroyo's ties with PAGCOR chair Efraim C. Genuino, on Stanley Ho's alleged P700M campaign contribution to GMA or how to apply as a presidential sexual advisor, let us focus on a central issue.

What is wrong with operating a casino anyway? An opinion is that gambling in general contributes to poverty both in the financial and moral sense. I suppose that's true for jueteng, jai alai and maybe even for your neighborhood pusoy dos. In that sense, given that your "target market" are not financially well off, maybe it is a good idea to keep temptation away.

But think Vegas, theme park and tourism - these are possibilities for progress for the country. So let's host all these high rollers. We don't have to play or spend with them. We can provide the hotels, the entertainment and the sites to visit. There is nothing immoral about that. It won't contribute to poverty because those bordering on poverty probably can't afford to be in the place anyway.

So did Stanley Ho visit the country to invest? To tie up with Pagcor? By all means, let him do so legitimately. If he wants to buy into Philweb, go ahead. Just let me accumulate shares first. If you've seen how many on-line casinos there are in the Internet, you'd realize just how lucrative on-line gaming is.

That's the pretty picture.

Archbishop Oscar V. Cruz has a point though when he said that big gamblers, drug lords and kidnappers are also visible do-gooders. He said that in reference to the Angeles University Foundation's (AFU) endowment of a humanities doctorate to Ho for his achievements. It's not exactly a baseless accusation by Cruz. The same gambling lord reputation also preceded Ho's investment entry back in the Estrada administration. It was that reputation that drove the catholic church against Ho, and subsequently, Estrada.

Did Ho really make a campaign contribution to GMA? If so, this blurs the issue. It shouldn't be called an investment but a concession and totally inappropriate at that. Considering the fact that President Arroyo's brother is the trustee of AFU, the situation only becomes more questionable. Don't forget that the administration also earlier denied having welcomed Ho to the country, only to retract the statement later.

For sure, GMA's detractors have highlighted the political color in the issue. After all, mudslinging is scheduled to peak in a few weeks. To brush this off as mere propoganda, however, would be unwise. GMA admittedly is becoming more and more a picture of impropriety.

So what would be the possible impact? An investment per se is politically and morally neutral. In this case, however, the circumstances are questionable. History will also skew perception towards the negative. Remember that the whole Ho bruhaha was a central issue to the BW scandal. The stock market simply cannot withstand another questionable chapter, as confidence is the catalyst to good market performance.

Analyst Recommendation: wait after the elections before welcoming such a controversial character.

Read this article

March 19, 2004

The PSE Private Placement

The PSE recently issued 5.26 million new shares or 40% of the bourse's unissued shares to five institutional investors: PLDT Beneficial Trust Fund, San Miguel Corp. Retirement Fund, the Government Service Insurance System, Kim Eng Investment Ltd. and KE Strategic Pte. Ltd.

The premise for the sale was the Security and Exchange Commission's (SEC) order for the PSE to sell more shares because brokers still held majority of the shares outstanding.

There were apparently several flaws. First of course is that the PSE sold the new shares P119.50 per share, translating to roughly about P730 million in proceeds. It's a good amount until we look at the shares' market value at the time of the sale, wherein the price hoevered from P190-P200.

Second is that the sale was reportedly done in haste. Whereas some stockholders were looking at a year horizon before deciding, the sale was executed almost immediately after it was contemplated.

Third was that the underwriter was ATR Kim Eng Capital Partners, which is conspicuously related to the buyers

Roxas also questioned the statement of the underwriter ATR Kim Eng Capital Partners which had pegged the price at a price-to-earnings ratio of 46 times the PSE’s projected 2004 earnings of R10 million.

For the valuation, it was determined that the selling price was at "48.6 times the prospective earnings per share of the PSE this year and a 10% premium over book value." The point was that at P119.50, PSE shares were already expensive.

Assuming that was the case, as an analyst I would recommend a 'sell' to holders at market. That's what happens in the market after all. Disposing shareholders sell down at market, but never below market. It even seems more scandalous considering that these are bulk shares. Remember that less shares such as in odd lots are sold at a discount; on the other hand, bulk shares, such as that made by SSS of its EBC shares, are done at a premium to market, regardless of valuation.

What would have been a better option? The PSE could have issued stock rights at the lower price. In such a case, existing shareholders would not have been prejudiced.

So the SEC ordered the sale? Let's compare this to other companies that should have sold shares to public. What happened to Smart, Calex or Shell? They all begged off apparently because of poor market conditions. Yet these are all required by law to list. It would be a stretch to believe that the PSE will not be allowed a similar concession.

As for the Kim Eng conflict of interest, let's just consult a CFA book on that.

March 17, 2004

First Quarter Decline

The Phisix recently touched a three-month low courtesy of an eight-session slide. Who do we blame? Martha Stewart's conviction? Nah. We don't have that many homemaker investors here I think. Could it be the Supreme Court's decision that FPJ is Filipino? Well it's hard to see any silver lining related to FPJ in the first place. Sigh. Look at the charts. When did FPJ announce his candidacy? Where did the peso go right after that? Maybe Janet Jackson's nipple exposure during the super bowl? Well that certainly didn't do anything for me. My guess is that it didn't do anything for the market either. The Madrid bombing? The Eddie Gil disqualification? Guingona's defection? Calpers? It could be all those. Well the market really should behave like this anyway. Remember, Google searches for migration also increased when Erap ran for president (or so I guess). But guess what? The market rallied right after the election because it was peaceful. Perhaps that will also happen this year whoever wins. Maybe we can position in the market in the midst of the intensified mudslinging. As a hedge though, keep your other foot in the Canadian embassy

January 18, 2004

Finance and Stock Market Lessons

I'm thinking of putting my updates here - It may be easier to update. Check it out.

So who would be interested in an e-mail based Finance and / or Stock Market course? Send me an e-mail so I'll know.

January 11, 2004

What Of The New Year

Well I almost failed to make it into the market in time for the yearend rally. The scheduled third-quarter decline took its sweet time. I was waiting so long that it was already November when I checked my calendar. But it came. From what I've read in the past, the long-term trend has already tilted in favor of the bull. That's good news for longer-term investors. So, is buy and hold the strategy for these times? It could be profitable, but probably not the most efficient way to go.

Last time there was an actor running for president, I heard all those talks of migrating. I thought the same thing after all. In the end though, the market rallied right after the election, mostly because the public judged it as 'peaceful'. Will the same transpire this year? Let's wait and see.

But as for efficiency, I'll probably pull out of the market soon and go fixed income. At least until the next signal to buy pushes me off the bed.

Happy New Year! I have a feeling I'll be more active in updating my site from now on.

August 27, 2003

You Can Always Count On Scandals

Well hello Mr. Pidal! Come to think of it, Mike Arroyo's a better scapegoat than Paeng. He's not very well liked and the markets won't mind so much if they crucify him. Quite surprisingly though, the stock market's holding steady. Why is that? Well, there's the peso depreciation which has been inflating stocks with dollar counterparts (PLDT at P555 and MFC at P1620). Then you have your foreign buyers still buying. Philippine assets are actually cheaper for them now. But overall I still think the third quarter decline will take place. But in the meanwhile, the peso should strengthen and rates in the secondary market should ease. Hello Jojo. Nice of you to drop by.

August 16, 2003

If It Takes That

I was talking to a former officemate a few days back. We just attended this totally boring stock market seminar. Anyway, while in line for coffee and snacks, I told her how I was secretly wishing for another coup, or some other sort of disruption. I think I made it clear in my last entry that a major correction would be good for this market...well at least it will be good for investors like me who have not had the chance to enter the market again after the June run-up. Funny thing was, she was actually hoping for the same thing. Well Paeng, please keep hogging the headlines. It's a good, non-violent way to depress the market.

August 10, 2003

Correct, Damn It

The funny thing is that every time the market corrects, the convenient reason by analysts is the coup. Well no, that's not exactly the case. It's been correcting because it has been overdue for weeks. These days in fact, I find that it hasn't been correcting enough. It's quite frustrating because I see the charts everyday. It's hard to be disciplined sometimes when you're in the heart of the action. But it must be practiced nonetheless. So grudgingly, I will put my checkbook aside for a month or two and hope that the Phisix falls by about a hundred points or so. Maybe then.

Imagine that. San Miguel performed poorly in the first half. Suspicious me thought that Danding & Co. will 'massage' earnings to provide him with an obvious platform should he decide to run. Maybe they'll make it more dramatic and pull off a record breaking fourth quarter run.

Much has been said about the country's low savings rate. About how a high savings rate is a necessary requirement for more rapid investment spending. But why would we save? Your RTB yields about 9%-10%. Well and good. That's why the government raised more than P70b from the latest issuance. But the higher risk investments yield less. BPI's premium fund for example only returns about 7%. We all know about non-existent returns for CASA. The stock market? That's arguable. When I checked, other funds also yield under 10%. Do we really expect these to be popular then? I wonder if the same case is true for our neighbors? Are the returns of their higher-risk investments lower than T-bonds? I'm too lazy to research on that now, so I'll pose the question to the audience. But enough about what it says about investor behavior. Imagine what that implies about the 'skills' of the country's fund managers? Hmmm...or could it be that management fees are too high? Perhaps financial firms need to be ravaged some more to squeeze out cost efficienies.

But as for me, the fool that I am, I'll take my chances with the stock market. Hello destitution.

July 1, 2003

A New Initiative

It seems like every time I update, I can easily say, "it's been a while." That's irregular for you. Anyway, I'm happy for the market these days. Apparently, the war didn't eat heavily into corporate profits as the first quarter results have shown.

In any case, I'm back in the thick of the market (or at least getting back). For interested surfers out there, check out the new mailing list that I created. It's called Independent Research Philippines and the plan is to send regular stock market related news, events and opinions through that mailing list. So please do join. This is different from the existing discussion list, well, because the old one is a discussion list. Do check it out and tell me what you think.

By the way, if you're looking for a good investment outlet, I hope you noticed the recent retail treasury bond (RTB) issuance by the government. It was such a hit. Upcoming is the RCBC capital notes, which I hear promises around 11%-12% returns. The "catch" for us retail investors of course is that the minimum investment is P500k. Whew. But hey, you have friends right? Pool your money. I personally believe it would be hard to find similar returns in other investments. But in case you miss that one too, wait a while. A lot of banks are planning to issue Tier 2 capital notes to improve their capitalization. These might be good investments too. But of course, as a resposible investor, please do check out the company's financials before investing your life savings. Prudence. Prudence.

Any bankers out there??? With all the high-tech developments in the industry, I do wonder why there are still no investment functionalities in ATMs. Tsk. Tsk. I can't be the only market for that.

April 21, 2003

A Fresh Page

Imagine that. Months ago, I've been arguing my heart out that the Iraq war simply will not take place because I believed that the diplomatic risks were too high. Well kudos to Mr. Bush for proving me wrong. Funny but I just can't seem to come to terms with the will of one man overriding so many others. Personally, I think it sets such a bad precedent. It was a win for strong leadership, but a loss for justified actions.

During that time when the rubble were still buildings, the peso weakened day in and day out. It came to a point that people I talked to all asked about P60:$1. Honestly I couldn't say no. Each delay then in the UN's resolutions only served to prolong the uncertainties in the world markets. One time I even voiced out that there would come a point that the cost of waiting would even exceed the cost of war. But gladly, I don't think we ever got there. Imagine reeling from $40 / barrel crude prices, a P60:$1 exchange rate, and possibly higher interest rates. Wow, that's sure to cut generously into what would have been 2003 corporate profits.

But this is all academic now. We're pretty much back from where we were before the war, marketwise at least. Hopefully whatever costs were priced into 1Q03 corporate performances were not substantial enough to push companies into the loss column. Otherwise, this nice little run-up that we've been seeing in local stocks will just as easily dissipate. But that aside, 2003 may actually prove to be a good year in terms of utilization, expansion, balance sheet stability, and hopefully even profits.


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