Investing in the Philippine Stock Market

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Investing in the Philippine Stock Market provides a mixture of news, commentaries, theories and even investments-related humor. Economics, politics, finance and of course equities are the most common themes. The author dabbles in technical analysis about once a year. This site has been in existence since 1999. It was not inspired by the Asian Crisis and did not cause the Tech Fallout in the ensuing years.

This being a personal site, the author takes numerous liberties in discussing non-market activities and issues as well.

Indulge me. Do a Google search on Philippine Stock Market after you finish exploring this site. ;-)


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IN PERSPECTIVE

July 5, 2001

Dispelled


After being caught in an entrancing 10-session decline, the market finally gained some headway, following the peso's rebound to an average of P52.954 to a dollar from yesterday's P53.025. While there has been no feedback yet if the BSP intervened in the peso market today, the central bank did announce that it did not change interest rates. The BSP in fact has been consistently saying that its most serious consideration right now as regards the overnight rates, is the inflation picture for the rest of the year. In effect, the BSP has been downplaying any the chance of an interest hike based on the weakening peso.

In any case, most investors, despite the rain, went bargain hunting with 43 issues recording gains, compared to only 27 that showed losses. Turnover remains lackluster - not even reaching that P500mn mark.

Most funds flowed into big blue chips like BPI, which gained P1.50 to P72.5. Fellow Ayala subsdiary, ALI was also buoyed by the positive sentiment and gained 5.88% on the day to close at P5.4. BPC, having a see-saw week, once again performed strongly, gaining 6.98% to P1.84. SMPH, which has been fairly steady for the week, posted a modest gain of P0.10 to close at P6.2.

RFM quietly gained another 5.81%, closed at its intra-day peak and earned the distinction of reaching its 10-month high. What makes it remarkable though is that the rest of the market has reached bargain level prices courtesy of the 10-day skid.

For tomorrow, we would like to see the index breach through the 1410 level to affirm its technical rebound. Should that happen, we see a positive reversal for the index. Resistance is at 1430.


July 4, 2001

Weeklong Weakness


For sentimental reasons it would almost be a shame for the index to stop its downslide. For the tenth straight session, and the 12th in 13 sessions, the index registered a decline. With today's 6.08-point drop, the index is now at a strong support level while maintaining its oversold position. For this reason, we believe the bounce may be imminent within the last two days of the week.

That of course presupposes a natural course of events in the usual factors affecting the market. However, with the freefall of the peso we doubt if there will be much buying pressure in the bourse in the coming days. As the peso breached the 53:$1 level, the BSP claimed that the dollar purchases represent legitimate corporate demand and not speculation. In effect, the BSP said that it has not yet stepped in to defend the falling peso, but indicated that it will do so if necessary. Traders however said that a US bank and a European bank sold more than $15mn at the 53 level today, fueling speculations the banks did so for the BSP.

Now instead of directly intervening in the forex market, we believe the BSP may choose to raise interest rates, similar to what it did in the last quarter of 2000 when the peso plunged from about 42 to 50 to a dollar.

Given the parallel weakness of the two markets, we may just see a simultaneous recovery with one market taking its cue from the other. Most probably, it will depend on a decisive act from the BSP. Perhaps by tomorrow, with the Monetary Board's meeting, we may find the answer.

Given today's scenario, it comes as no surprise that SLC performed strongly, gaining P55 to P1250. This puts the issue within striking distance of its all-time high of P1335. MFC performed just as well, padding its price by P40 to close up at P1455. Now both issues are technically overbought. Nonetheless, we believe most investors will continue to trade the issues given the volatility of the forex market.

PLDT, like SLC and MFC has a dollar-asset counterpart. But unlike the two, most of PLDT's assets are based in the country, making it much more susceptible to wild gyrations in interest and exchange rates. The issue didn't finish shabbily though, closing flat at P710.

Meanwhile, in the news, FPH was reported as planning to sell a stake in its subsidiary First Generation Holdings Corp. to a Japanese investor. FPH, which has been in an uptrend in the recent weeks, today closed unchanged at P28.50. Its mother company, BPC was not quite as lucky. The conglomerate faced a deluge of selling orders resulting in a 7.53% decline to P1.72, virtually erasing its gains from yesterday's trade.

RFM, which has generally been an illiquid stock, has attracted much attention in recent weeks after its softdrink unit Cosmos, has been receiving offers from both Pepsi and Coke for a buy-in. Today, 9.7mn shares of RFM traded hands, or almost thrice its 30-day average volume, with the issue gaining 4.88% to close at P1.72. CBC had a similarly positive day as well, inching up 2.33% to P4.4.


July 3, 2001

Be Still My Peso


Today's trading session resulted in the 9th consecutive day of decline of the PHISIX. The 3.72-point dip was the consequence of 39 issues registering declines, against only 28 that could manage gains.

The market's primary concern these days is the steadily depreciating peso. Even more worrisome is that in the past two days (including today), the declines have become faster. The BSP has already said that there has been slow dollar inflows coupled with strong corporate demand, leading to the strengthening of the dollar. At this rate, we may expect the peso to start touching the 53:$1 level perhaps even by tomorrow.

Psychologically, that may result in even more sell-offs at the stock market. However, as is the main index is already technically oversold. Hence, barring any unforeseen major negative event, we could look forward to a technical bounce, perhaps by the end of the week.

But as mentioned, the market has been weighed down by the peso's condition. As a pre-cursor to the bourse's rally, we must see some upside from the peso as well. Otherwise, there will be a host of concerns that will crop up again. There will be worries concerning companies with foreign-denominated debt. We would also see some upward pressure on interest rates. Then of course, even as the big three major oil refiners raised prices this week, there will be more pressure to raise oil prices again. The BSP for its part, claims that it has not yet intervened in the forex market although again it paid lip service banks that may have been speculating.

Strangely, with the peso becoming a concern, the normally reliable forex hedge issues such as PLDT and Sun Life both registered declines today. Whereas PLDT corrected by P20 to P710, SLC lost P25 to P1195. Then again, we have trading sell recommendations for both issues, precisely because they have been rallying for the past week or so. Still, with weak peso conditions prevailing, we doubt that the corrections of both issues will last long.

Completing the irony would be the strong performances of BPC, PLTL and MPC - all of which have onerous debt loads. In the case of BPC, unconfirmed reports said that the company's water unit Maynilad has been granted its coveted rate hike. BPC in consequence, shot up by 8.14% to P1.86. PLTL on the other hand gained 6.67% and closed at P0.64. MPC, which earlier announced that it will dispose of its stake in the bleeding Nenaco by declaring its Nenaco shares as dividends to MPC shareholders, rose by 2.13% and closed at P0.48. MPC also announced that it had completed the Phase 1 structure of Bonifacio Ridge and that it already has a 70% take-up.

Philweb, which a year ago dazzled the market with its shift into the Internet business, announced that it had entered into an MOA with Itogon-Suyoc Mines, Inc., for the purchase of 12bn unissued shares of ISM. Under the agreement, ISM will divest its mining operations and will focus on IT services as well. The company will also court new investors who will be given control of ISM. WEB rose by 2.63% to P0.039, while ISM shed off 8.70% to P0.0525.


June 27, 2001

THE ARRAIGNMENT


In seven of the last eight trading sessions, the index trended lower. In that span, the index has lost a cumulative 63.57 points. With today's 7.71-point decline, the index level settled at 1415.73. The mood wasn't half as festive today, with no wild market swings and the index trading in a narrow 11-point range.

The sluggishness was partly attributable to the wait and see stance of most investors with ex-President Estrada's arraignment just a day awayu. President Arroyo has made repeated pronouncements of unnamed groups allegedly organizing destabilization acts, reminiscent of the May 1 attack on Malacanang. True enough, we believe that adds uncertainty to the investment atmosphere even as the PNP and the military massed their forces in Metro Manila.

Based on the main counter's chart, we find it more beneficial for the market to continue its decline, perhaps for the last two days of the week. After that, the index may just hit its support level at around 1390 and at the same time be technically oversold. That would thus provide investors a good buying window.

Meanwhile, from under our noses, MBT has been sliding past its comfort zone. Following today's P4 slip, MBT at P205 is now at its lowest point since President Arroyo assumed the presidency. The issue seems to be at support level already. Being technically oversold at the same time, we could see a bounce for MBT. On the other hand, it also looks primed to cover a gap at the P192 level. A look at the issue's weekly chart however, shows that it may have an even long drop ahead of it, with P167 as the next major support level.

Earlier, BPC clarified an earlier news report stating that The Supreme Court had denied the company's petition for review of the CA's ruling revoking the company's permit to operate its cellular business. The company said that the petition in fact is still pending in the court. BPC as of late has been mimicking the index' fluctuations, and has lost 20% in the past eight sessions. Today it closed at P1.56.

In a belated move to ride the IT bandwagon, mining stock ISM announced that it added information technology or telecom and other similar businesses under its articles of incorporation. ISM today was steady at P0.05 with over P10mn in turnover.

AEV confirmed that it may opt to delay the sale of WG&A, wherein the company has an indirect interest through Aboitiz Transport System. WG&A announced a return to profitability for the first quarter. AEV gained 1.43% to P1.42, while WGA was untraded.


June 26, 2001

FICKLE


The market went through another mild dip of just over a point as a lack of technical and fundamental incentives brought about mixed results in the trading of publicly listed stocks today. Trending downward for the seventh consecutive session, the index still has to hit an oversold position. With more investors now at the sidelines awaiting clearer signals, turnover has dipped a bit in recent sessions. In fact, right now the market seems to be running on rumors again, as we have seen many times in the past during periods of downturn.

AJO, which caught punters' imaginations yesterday with a near-ceiling performance, became the latest victim of a fickle market. We learned that the company's pet subsidiary, QNET which is now involved in the deployment of video conferencing terminals is expecting a strategic investor to sign up within a week for about a 25% stake. In the floor, there was much initial excitement as the issue rose by as much as 13% to P1.56, coming off its P1.38 close yesterday. It didn't last long however, as a lot of traders dumped the issue, resulting in the issue's 5.8% drop to P1.3. Volume however continued to swell with 14.9mn shares trading hands.

Construction firm DMCI Holdings earlier reported an P85mn profit for the first quarter, recovering from a P65.6mn loss in the same quarter last year. The company's revenues improved by 69.2% to P1.5bn. Despite the news, the DMC shares slipped by 3.33% to P0.29.

Meralco disclosed that its board of directors approved the appointment of Meralco President Manuel M. Lopez as Chairman and CEO, Chairman Felipe B. Alfonso as Vice Chairman, and EVP Jesus P. Fransisco as President and Chief Operating Officer. MERB closed up by P5 to P56 while MER closed unchanged at P39.

RFM denied that it was actively looking for buyers of its softdrink unit Cosmos. The company instead claimed that it was only looking at prospective buyers as a duty to its shareholders. Furthermore, the company added that talks regarding the sale of CBC are still exploratory. RFM gained 4.17% to P1.5, while CBC lost 6.67% to P4.2.

Mondragon in a breakthrough announcement said that it had agreed with PAGCOR to re-open Mimosa, which used to generate around P100mn/month. Under the deal, the casino will be re-opened on July 6, with 75% of the gross casino revenues to be kept by PAGCOR. The rest will be split between MON and the Clark Development Corp. MON owes Pagcor P82mn and CDC P325mn. MON shares remained suspended.


June 22, 2001

HEDGING ACTION


The market continued to slip today, it's fourth in the last five days, resulting in a 39.53-point decline for the week. Today's drop however, was a mild 4.4 points, although there were considerably more losers than gainers, with a 49:30 ratio.

At the helm of today's correction was PLDT again, with a P5 decline to P710, although it traded as low as P705. As of late, PLDT has not been buoyed by the weakness of the peso which has been trading above the 52 level to the greenback. By contrast, the two multi-national insurance firms, SLC and MFC both chalked up gains today, of P40 and P60, respectively. SLC closed at P1175 while MFC peaked at P1410 - the issue's highest close since the first week of January.

Meanwhile, at the heart of the market's interest were RFM and CBC. With a potential bidding war between SMC-Coke and PepsiCo for RFM's softdrink unit CBC, the latter two climbed steeply in the past weeks. Today, with confirmations from both SMC and PepsiCo officials regarding the negotiations with RFM, investors sold heavily with the news. Whereas, CBC plummeted by 12.25% to P4.65 (its intraday low), RFM plunged by 14.46% to P1.42 (also its intraday low). Based on the latest news release, CBC was almost fully valued compared to RFM's asking price of almost P6/share. We believe the arrangement with PepsiCo seems more workable. However, with no finality in the talks, expect more volatility from the two issues.

ISM which has been running on rumors again outperformed today, with a 12.5% rise to P0.0675 - the issue's highest level since Feb. 2000. In the past two weeks, the issue has risen over 419%.

Meanwhile, it looks like ICT has fallen out of the market's grace. Since the company reported the finality of its sale of its overseas unit to Hutchinson, the issue thoroughly weakened. For the day, it lost 12.45% and settled back to P2.32 after peaking at P3.1 a week ago. That spells a 25% drop for the issue.


June 21, 2001

PLAYTIME


It seems the fund rotation cycle becomes more exciting as the money flows into the second and third-liners. Despite the relatively flat index movement (a 5.28-point drop), individual issues provided some worthwhile volatility. Softdrink maker Cosmos Bottling Corp (CBC) really shook up the market, following up its 15% gain yesterday with another 14%. The result is a three-year high for the issue at P5.3. The issue is now just a couple of fluctuations bellow its all-time high of P5.8. If we are to believe the news however that SMC, with the great monopolizer at the helm, will gobble up CBC to a tune of P8/share or even higher, then the rally may be far from over. Then again, the news hasn't really come up in recent days, but with RFM's 22.06% rise today to P1.66, we would keep rethinking the old news.

Despite the double action of the Concepcion stocks, the speculative awardee for the day is undoubtedly ISM, which took a 33.33% flight to P0.06. While still a far cry from its over 230% trek in the 1996-1997 period, the issue is for all intents and purposes back in vogue. Still with no profit to speak of, the company is rumored to be the backdoor vehicle of Shell Petroleum. To recall, both Shell and Caltex are mandated by law to list this year. The two, however have deferred their respective IPOs, citing poor market conditions.

The Ayala companies merited some buying interest today, with ALI registering a 3.7% gain to P5.6 and BPI gaining a peso to P75.50. Notable too were the net buying positions of foreign funds on the two issues, aggregating about P40mn.

EBC, which has been jinxed after being linked to ex-President Estrada's illegal operations, reported an NPL ratio of around 18%-19%, a bit above the industry average of 16%. The bank expects that further provisions will drag down the bank's income for the year. The bank stated that the priority is to have a clean balance sheet (not a cleaned out deposit base) by next year. EBC today dropped 5.13% and closed at P37. It also 'dropped' as director, GSIS head Winston Garcia who has been having policy differences with other directors. The issue is down 37.3% for the year.

In other stock developments, bellwether PLDT slid back by P10 to P715, ICT continued its descent to P2.65, oil refiner PCOR took a breather to P2.2, while beverage company LTDI stood still at P27.

The index seems to have lost momentum either way. And with the way funds have been flowing into smaller cap issues, we may not expect much movement from the main index tomorrow. This is not to say the market will be devoid of excitement. Playtime continues.


June 20, 2001

MARGINALLY


Yesterday, we commented how the market may salvage the remnants of its past rally by either staying flat, or by gaining a bit. True enough, it stayed flat, registering a 0.72-point gain, but more importantly maintaining its upward momentum based on its charts. We had feared the index would test the 1430 support level should there have been continued selling pressure. Today's performance showed a balance in terms of market breadth, with gainers slightly outpacing losers.

But the headline figure doesn't really reflect the excitement in the market right now. True to the classic fund rotation theory, there is now renewed speculation in third liners, with talks of backdoor listings once again circulating. Mining issues that tickled punters' fancy today were LC, which rose by as much as 21% but ending just 5.41% higher than yesterday's close. The company's "B" shares fared much better, as it closed 15.79% higher to P0.22. A number of betters likewise trained their eyes on Philex Mining, as the issue rose by 11.11% to P0.4.

The distinction of being the best performer among the more fundamentally sound stocks however, belongs to CBC which raced to a 14.81% to close at P4.65. Since the issue's volatile breakout in early May when it was rumored that SMC may purchase CBC from RFM, the issue has gained an aggregate of 69%. The news has thus powered the issue to a three-year high and makes it among the best performers in the bourse.

We cannot fail to mention PLDT however with its heavy weighting in the index. After all, in the recent weeks, the issue's performance has been mirrored by the index. In the past days, the issue has been rather steady, trading in range, like today when it gained P10 to P725. TEL was also the most actively traded issue for the day.

Meanwhile, the company denied that it was open to selling a stake in Smart Communications, after a news item reported that it has been discussing such with Nippon Telegraph and Telephone Corp.

ICT, a victim of a classic sell on news syndrome, continued to show signs of weakness today, even as it gained 1.82% to P2.8. However, before closing up, it tested a P2.6 intra-day low, perhaps giving a hint of the issue's direction in the days to come.

In a similar boat is BPC, which managed to gain 3.49% to P1.78 today, even as it tested an intra-day low of P1.72.

Meanwhile, Equitable Bank announced that withdrawals reached P35bn at the height of the Estrada impeachment trial. The bank said however, that it had paid back about P15bn of that amount. The rest will be paid within the year. Nonetheless, EBC said that the cost of the loan will weigh down the bank's bottom line for the year. It also said that it plans to sell its bad loans, which amount to about P21.8bn, to generate cash. EBC lost a peso to P39.


June 18, 2001

CORRECT MOVE


There was a notable lack of interest in the market today, as investors expected a technical correction following six straight days of registering gains. Dipping by 8.38 points, the market succumbed to selling pressure even as most investors decided to stay in the sidelines. The result was that more issues showed declines, while value turnover dipped considerably after days of breaking through the P500mn level. As it was during the previous week's rally, PLDT was once again an accurate barometer of the market. Taking the lion's share of the trade for the past week, PLDT's volume for the day was less than half its 30-day average. While the issue briefly flirted with a P5 gain in mid-trade, in the end it closed flat at P725.

Some issues, like BPC weren't so lucky. After peaking at P2.14 three sessions ago, it has grown considerably weaker afterwards. Today it lost another 8.16% and settled at P1.8. While the issue does look ripe for a correction, it's weekly chart still looks hopeful. With a little luck, and perhaps the final approval of the government for its requested water rate hike, BPC may commence recovery with the index after a two to three day consolidation period.

Meanwhile, port operator ICTS said that its selling price for its ICTSI International Holdings Corp and Ensenada Cruiseport to Hutchinson International Holdings would reach $400mn. The sale has been the only relevant news about the company during the issue's run-up in recent weeks. The announcement however came after the wake of a negative reversal signal of the issue's daily chart last Friday. Thus, today's dip would only serve to validate that signal. Despite rumors of ICT peaking past the P4 level, we believe it will be a while before the issue breaks out again. Today however, the issue did give a mighty try, trading as much as 13% up at P3.4, but it lost steam in the end, falling steadily to as low as P3 before closing at P3.1.

In other news, MEG disclosed that it will use FAIR as its mass-housing vehicle, citing the company's relative weakness in that sector. MEG slipped by 1.23% to P0.8 while fair added 1.79%^ to close at P0.57. The news however, seemed to have given ELI an unexpected boost, rising by as much as 11%, but closed with the gain halved to 5.88%. ELI was last traded at P0.36.

We believe the index, now at 1470.92 could dip to about 1450 before staging a recovery. Should the index breach that level, we can expect to be down week on week.


June 15, 2001

SWEEP


And so the index gets to keep its streak. Like a hot playoff basketball team (go sixers!), the market has posted its sixth-consecutive gain, resulting in a 90-point improvement in the period. It hasn't been spectacular. In fact the gains have been modest, but considering the disturbing news that we have been plagued with, from kidnappings to higher utility and fuel prices, the streak is worth glossing over, for a while at least.

Being one of the most influential index issues, PLDT has in fact been largely responsible for the gains during the week. There are theories that PLDT planned dilution in PLTL would be better for its future earnings, which really doesn't say a lot of PLTL. It could also be a technical resurgence, with the issue coming off its six-year low last week. The company's acquisition of its final major convergence piece, GMA-7 may also have played a part. A combination of those factors and perhaps a tinge of speculation from market players, drove PLDT to an 18% rise during the market's streak. As such, PLDT now stands at P725. On a daily perspective, the issue looks due for a minor correction. On a weekly one, it looks like the rally has just begun. Thus, express your disappointment that you did not catch the issue at P615, but look forward to lower-priced entry points.

BPI, which is generally not very actively traded, today shot up to prominence with a one peso gain, apart from being the most active issue in the market today. In review, the issue has performed consistently strong, and is in fact bordering on overbought in its daily, weekly and monthly charts. Based on the issue's past performance, we really don't expect any surges anytime soon.

An issue where we would expect surges however is BPC. Influenced by conflicting news such as the passage of the power bill, the approval and subsequent recall of water rates, not to mention the conglomerate's debt problems, the issue and all its listed subsidiaries have been subject to much investor speculation. For the day, BPC gained 1.03% and was once again one of the heavier traded issues. Also stealing some light is FPH, which rose 5.77% today, and by almost 15% within the past three sessions. MERB has been quite steady during the market's current run, gaining just a peso in the period, while ABS has gained a respectable 5.2% during the same.

A closely watched issue these days, ICT slightly corrected with a P0.05 dip. Although floor talk dictates that the issue will continue its remarkable ascent, its daily chart clearly shows a correction in the offing. The weekly chart however, seems to support the rumors. ICT now stands at P3.2.


June 8, 2001

PROFITEERING


Today's market had investors looking to ride the rallies of some outperforming stocks, at least at the start. Coming off a 17.13 gain yesterday, index stocks zoomed ahead after the opening bell, going up by almost 18 points. You have ICT jumping ahead by 10%, CBC by 7%, BPC by 6%, MEG by 5% and even ALI by 4%. Not a lot of those closed at their respective highs. By the end of trading, the market just held on to a 3.85 point gain.

But the market never looked bleak. With PLDT gaining another P20 in a show of resurgence this week, 43 other issues managed to shore up their values, while only 29 succumbed to weakness. Apart from PLDT, a host of other major blue chips attracted much public interest. The likes of MBT, BPI, ALI, ICT, SLC, PCOR and BPC were among the heaviest traded gainers. MERB however, remained weak and lost P0.5 to P55. It was joined in the red by erstwhile highflier FLI which fell victim to profit taking. Coming off a P2.36 close yesterday, FLI quickly raced to P2.42, until profit takers drove it down to its day low of P2.34, where it settled.

Over the past week, the market has been favoring a number of selected stocks which perhaps would explain the greater than average volume today (+P600mn). Without much action in the past months, it would be reasonable to expect the average investor to milk this series for its worth. The prospects for power companies based on the passage of the power bill at this point is speculative of course. Bidders for NPC, foreign investors seeking tie-ups with Meralco and AEV, and improved operating efficiencies are all still well in the horizon. Passage of a law and actual implementation are two different animals. Still, expect investors to continue this flurry of trading in the name of the power bill.

As for the collective market though, the picture can't be that exciting. The present index level is as good as spot as any for inertia to seep in. On a technical standpoint, the index seems to be in-between extremes. So at this point, if you're looking for some action, be the average investor and ride this current wave.


June 7, 2001

AN ACCOUNTANT'S TOUCH


The market recouped yesterday's losses and more, inspired by PLDT's P35 gain for the day. TEL, which the other day skidded to its 6-year low of P610, experienced a fresh wave of bargain hunting today, following up yesterday's budding rally of P5. News reports earlier said that PLDT will change its accounting treatment for Piltel that would cause a dilution in its ownership, such that it will only become a minority shareholder. If PLDT owns less than 50% of Piltel, then it would no longer consolidate Piltel's F/S with its own. But with PLDT not citing any financial savings from the move, it would seem to be a pure window dressing act on the phone company's part.

Anyway, as TEL closed clawed back to P650 at the end of today's session, so were 40 other issues inspired. The result was a 17.13 gain by the index. Albeit almost purely technical, the gain is welcome as the index once again closed above the psychological 1,400 barrier. Still, this could easily be a one-time thing as no factors in the political and economic climate have really changed overnight. Yesterday, the index lost 3.19 points, weighed down by four recently exciting issues. Today, three of those are back on the winning track. AEV gained back 2.63% to close at P1.56. PCOR came back more convincingly with a 5.56% gain to P2.28. Lastly, CBC earns the distinction of being the top gainer for the day with a 13.33% rise to P4.25 despite SMC's denial that it was mulling the purchase of the former. The fourth in the group, ICT continued its slide, slipping 1.96% to P2.5.

Meanwhile, the BSP announced that it left its overnight rates unchanged, and will instead wait for further economic data to be released before acting. Then again, it shouldn't come as a surprise because most of the BSP's moves as of late only mirror that of the US Fed's.

Despite the government's media blackout, the Abu Sayyaf bandits were able to announce that it will execute its American hostages if negotiations are not conducted. Surprisingly, the armed forces are now trying to negotiate as well despite President Arroyo's well-applauded policy of bandit extermination.

Depending on which way the Mindanao battles go, we believe the issue still has some shock value left for the market which could cause an outflow in hot money. However, the more important point seems to be the war's cost to the economy. To recall, it was ex-President Estrada's war against the MILF last year that drove the budget deficit to double its original planned amount. Should Arroyo's own campaign drag for months, it could result in a similar pressure to the budget - a pressure we could ill-afford.


June 5, 2001

CONVERGENCE CRASH


Today's trading was marked by another extraordinary performance by PLDT, on the downward side that is. Shedding another P30 following its ADR's $0.48 decline to $12.74 last night, PLDT closed at P610, a six-year low for the issue. The issue may have been dragged down by its loss-making subsidiary Piltel. The latter announced that it has satisfied all the conditions necessary for its debt restructuring. To recall, PLDT has pledged to cover half of Piltel's debts via issuance of convertible bonds to Piltel's creditors. The anticipation of additional financial burden for PLDT may have partly caused the issue's decline.

Another notable decliner for the day was MERB which shed 5.13% to close down at P55.5. The company, which is an expected beneficiary of the newly passed power reform bill, was sold at the news. It's "A" shares were likewise dragged down by a smaller 2.44% to close at P40. Another company that would be directly affected by the power bill is AEV. The issue in contrast gained subtly by P0.04 to P1.66. The issue's collective gain however since April has not all been subtle. It soared by over 50% during the period, compared to the index which just managed over a 1% rise for the same period.

However, AEV is not by far the best-performing issue of recent weeks. That distinction would belong to ICT, which again for the same period has gained over 145%, rising from P1.12 to P2.8. The buzz on ICT apparently was its sale of its 25% stake in ICTSI International Holdings Corporation (IIHC) and its Mexican passenger cruise terminal to Hutchinson International Port Holdings Ltd. (HPH). ICT's founder shares are granted 10 votes per share. The sale thus transfers controlling interest to Hutchinson. ICT will likewise grant HPH an option to acquire the preference B shares that its wholly-owned subsidiary International Container Terminal Holdings, Inc. (ICTHI) owns. Lastly ICTHI will also sell interest in Ensenada Cruiseport Village S.A. de C.V. which operates a cruiseport in Ensenada, Mexico. We thus attribute the renewed interest in the stock to its potential gains in the sale, not to mention the improved liquidity picture of the company.

And so it seems that liquidating assets is the order of the day. We've also heard the same story from BPC, which is saddled with foreign currency debts, as well as RFM which has sold its profitable and sexy subsidiary PSi Technologies. BPC was unchanged at P1.48, while RFM continued its fortunate streak with a 3.51% gain to P1.18.

Not all issues however can resort to selling assets in the name of focusing on core businesses. Music.com, once Music Corporation's most exciting angle has failed to secure another round of funding from its majority shareholders. In effect, Music Corporation just infused new equity to the portal just for the latter to be able to wind down its operations. Surprisingly though, MUSX even gained 4.5% to P2.32, retracing its recent steep losses. Perhaps what helped MUSX dispel concerns was that it disclosed that it had written off Music.com already, and commenting that it will not significantly affect its financial position.

ABS, which we had suspected of planning a share buyback in order to lessen the BPC's dilution upon the conglomerate's sale of 8% of its stake in ABS, announced that it will not buy back the whole 8% after all. The company clarified that its board of directors only approved the repurchase of 10mn common shares or its equivalent in Philippine Depositary Receipts for the employee stock option plan. An earlier claim by the company however is that the repurchase is precisely to prevent BPC's dilution as well as the support of the company's shares, which ABS believes is undervalued. ABS closed unchanged at P38.


June 4, 2001

WAR AND POWER


The market's concerns for the day, much like the previous days were the passage of the power bill and the on-going military operations against the Abu Sayyaf bandits in Mindanao. So far, the mood has been cautious. The index slipped 3.64 points to 1412.45, breaking the market's three-day gaining streak. Over the past 10 sessions however, the index had lost almost 40 points.

As of today, the power bill has already been passed in Congress and is now poised to be approved in the Senate. President Arroyo has personally pushed for the bill which has languished in the legislature for years already. The supposed beneficiaries of the pending bill, Meralco and First Philippine Holdings, closed mixed for the day. FPH and MER were both unchanged at P41 and P24, respectively, while MERB slipped 4.1% to P58.50.

The war against the kidnap-for-ransom gang Abu Sayyaf has taken its toll on Mindanao, and has tarnished the image of the country again. With scores injured and even more kidnapped, the government and the military is hard-pressed to end the conflicts swiftly and decisively. Nonetheless, government officials and the public seem to be in approval of the president's hard-line stance against the bandits.

Come to think of it, the new wave of kidnappings came at a really bad time. The country is already smarting from a drop in trade levels, partly attributable to the political crisis of the 4q2000 which resulted in wild fluctuations in interest and exchange rates. Newly released reports note that merchandise exports from January to April 2001 are down by 4.1% from last year. For April alone, exports are down by 15.8% from last year.

There remains continued speculation in Cosmos, as the issue rose by another 3.85% to P4.05. Now at its highest level for the year, CBC has gained almost 40% in two weeks of action. As for the cause of the surge, talks have it that SMC has offered to buy Cosmos at about P8-P12 / share, which implies over a 100% premium. RFM however, has been quick to deny an impending sale, saying that CBC is at the core of its strategy and is therefore not for sale. Some analysts however, are skeptical of RFM's statement, since RFM is hard pressed for funds to redeem its convertible bonds which were due since May 30. RFM in fact has already sold its stake in Nasdaq listed PSi Technologies. Despite RFM's cash problems, it too had some spillover speculation, gaining 11.76% for the day.


April 8, 2001

IONICS DOWNGRADE


I would like to publish my most recent Ionics report where I downgraded the issue. As usual, I would welcome constructive comments. Meanwhile, may I also take this opportunity to greet my dear friend Jojo, who is celebrating her 27th birthday today. Behave girl!

For most tech stocks in the US, the rationale then given for the continued bullishness by analysts was that new applications for chips and mobile devices were being created by the moment. With the diversification of use, tech stocks such as PC makers, Internet infrastructure providers, and software developers were deemed immune to the typical boom-bust cycle characterizing most industries.

The rationale was plausible of course. At this point, most companies are still drafting e-commerce plans, and demand would thus seem insatiable in the coming years. And this is just for your basic tech stocks.

The darlings within the industry are the contract manufacturers. In the US, major players like Solectron, Celestica and Flextronics typically grew by more than 30% every year, were profitable and were trading at 90+ PERs. Last year, only 15% of OEMs have started outsourcing. With the industry estimated at around $100bn already, the growth prospects were indeed astounding.

But truth to tell, no one really expected the shakeout in the US to be this drastic. Day after day, the Dow Jones and the Nasdaq were battered with news of profit warnings, manpower cuts, warehouse closures and worse, looming bankruptcies.

To a fault, the news reports were already self-fulfilling. With the weakness in the demand in some industries, some companies have been forced to scale down expansion plans. In doing so, suppliers and business partners of such companies would also have to scale down. The grand effect of course would be the massive scaling down of growth prospects of whole industries, unfortunately, including the contract-manufacturing sector. In fact, the same companies I mentioned with the erstwhile ridiculous PERs are the same companies announcing weak prospects for the year.

It is with this information that we suspect Ionics may also be reeling from the effects of the global technology slowdown. As further validation, we did a sweeping survey among Philippine- based companies within related industries. Indeed the slowdown has been felt, with one semiconductor company admitting that they are producing at half their normal capacity. Layoffs have begun and voluntary retirement packages are being dangled.

In light of these developments, we scaled down our expectations for ION. In general, we believe our estimates are now much more conservative. To a large extent however, the performance of ION is tied-up with Philips given their $1bn / year deal. Unfortunately, there have been news items of Philips likewise feeling the pinch of the US economyís weakness. As such our estimates are based on a scaledown by Philips of the contract with ION. This may or may not happen so we chose a mid-ground in forecasting. Should Philips substantially decrease the contracted output or postpone the deal altogether, we believe this would be catastrophic for IONís earning potential for the year. Given that even IBM, one of IONís major clients, has likewise been cutting manpower could also be a bad omen. In any case, these are still just scenarios that could be better gauged once ION announces its first quarter earnings. Without such negative developments, ION could still pull off a very impressive year.

Nonetheless, we donít believe that IONís long-term viability is threatened as much as itís short-term earnings are. With this in mind, we recommend a SHORT-TERM TECHNICAL BUY, a MID- TERM HOLD, and a LONG-TERM BUY on ION shares.


March 25, 2001

Come to Bear Country


So far the local market is still taking its signals from the US. With the Dow almost in bear country, should we expect the same? Well the way the market has dropped almost consistently for two weeks now, almost everyone would probably come to the same conclusion. So is now the time to buy?

For that, we'll have to see what happens to the US market. After all, we will continue tracking that market. But even on our own, I don't see a two to three week rally just yet. The phisix chart needs about a 40 to 50 point decline before a good rally can commence. Otherwise, we should just be content with a one to two day bounce every now and then.

Even when I checked the charts of the major index stocks, a lot of them still have a long way down to go. But on a daily chart, most of them are really oversold already. I wouldn't be surprised if the index rallied this Monday and Tuesday. After that, I would expect a consolidation with a downward bias. Hopefully by Friday, both the daily and weekly charts of the index will be oversold.

In the meanwhile, I have my eyes on TEL, ION and ABS still. I would also bet on wildcard SECB.

If you're waiting for the property stocks, well further retracement is warranted. Choose some other index stocks first. If I recall correctly, even SMCB looks good. If it declines a peso or more within the week, that may be a good pick-up point already.

Here's something to think about though. The election fever is heating up. We've heard how the candidates continue to dance and sing. We've heard how the wife or son or cousin of an incumbent would be running for some other position. Wow! It's as if nothing has changed. If so, expect the muckraking to escalate in the coming weeks. We may just have another scandal in our hands. But then again, that's just me speculating.


March 15, 2001

For eight consecutive sessions up to today, the index has performed miserably. Within that span is a 40+ drop and today's 30+ drop. As the index breached the 1500 psychological barrier, a lot of investors must be feeling queasy with their long holdings. There's good reason too. From Japan to the US, all we hear are negative stories. Japan has been trying to stimulate its economy for a decade, while the US may be on the verge of a recession. The Dow is below 10000 and the Nasdaq is below 2000.

But it's not all that bad. My own take is that we're in a period of relative calm. I certainly believe things were a lot more uncertain last year, with standoffs just waiting to happen between opposing political figures. That being said, I would like to believe that the stock market will now be more predictable. Sure there's a drought in terms of volume, but that's really not much of an issue for us retail investors right? Let the fund managers suffer. It's our turn to thrive. ;-)

Very quickly, my personal picks are TEL at P740, ION at P11.75 and ABS at P40 for the coming week. In fact, I've already picked up ION at P11.50. Hope it doesn't dip tomorrow. By next week, if the index continues to fall, perhaps to the 1450 level, a lot of other issues would be ready for positive reversals. Take your pick. You have SMCB, MERB, AC, ALI, BPC, EBC, MPC and SMPH.




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