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Market Watcher - Trust Banking Group
Weekly Market Commentaries February 7,2012 Turbo Boosting the Economy & Financial Markets Local stocks experienced some mild correction around the middle of last week but the pull back was shallow as investors snapped shares to take advantage of lower prices. But is the market still cheap? At current level (PSEi at 4,783) the market is still trading at around 14x 2012 earnings. This multiple is still a shade lower than the market's long-term average of 15x. Thus, we are not expensive as yet but not cheap either. Despite current valuation, the market keeps rising due to sheer liquidity. Increasingly, passive funds (e.g., exchange traded funds or ETF that merely track an index) are becoming significant market players due to their size. Vanguard's MSCI Emerging Markets Index Fund has a market value of USD54.3 bn while a similar fund managed by Blackrock (iShares MSCI Emerging Markets Fund) is currently valued at USD39.4 bn. The strategy of these funds is to invest their money based on the allocation of the MSCI Emerging Markets Index. The allocation for the Phil. is 0.6% and 0.8% from the BlackRock EM Fund and the Vanguard EM Fund, respectively. Not much in percent but already several hundred million dollars in absolute amount. In addition, BlackRock has a dedicated ETF for the Philippines. This fund is just 16 months old but is already worth USD102 million. The entire amount is invested in Philippine equities. BlackRock also launched a similar fund for Indonesia in May 2010 (only 20 months old). It is now worth USD337 mn). The Philippine and Indonesian exchange traded funds are clear examples of how passive funds have grown in recent years. These funds were non-existent two years ago. Also inside: 1. It's more fun in the Philippines 2. Inflation continues to moderate 3. SM group to acquire Ortigas property 4. GT Capital Holdings IPO 5. PPP update Click here to read more. Turbo Boosting the Economy & Financial Markets Local stocks have been exceedingly buoyant since the start of the year. Buying has been across the board but with emphasis on big cap issues (i.e., issues with large capitalization). What makes the current rally interesting is that price appreciation is accompanied by strong volume. Apparently, this is not your flash in the pan rally but something more real. By the end of January, the PSEi was already ahead by 7.1%, a far cry from its 4.7% performance for the entire 2011. As market strength continues investors are starting to worry about the sustainability of the rally. How long will it last? Can it continue further or is this merely a fluke? In general, there are two factors that exert influence on share prices -- fundamentals (e.g., earnings, management, economy) and technicals (e.g., sentiment, funds flows). Key developments indicate that both fundamental and technical factors are working together for the benefit of the economy and financial markets. These converging developments are (a) monetary easing; (b) fiscal expansion; (c) privatization; and (d) liquidity. Click here to read more. January 24, 2012 Stocks ended lower last week on profit taking. Investors have been anticipating the correction after two weeks of solid gains. GMAP and GMA7 were heavily traded on rumors that the network is in talks with businessman Manny Pangilinan. It was an uneventful week for local bonds as most traders remained in the sidelines awaiting for signals on whether or not the BSP will further cut rates. Meanwhile, the peso continues to strengthen on the back of solid domestic fundamentals and a weaker US dollar. As uncertainty over Europe's problems ease, the "safe haven" status of the US dollar is losing its appeal. Investors are slowly becoming risk taker once more and are shifting some of their funds into riskier assets like equities and emerging markets. Some developments to watch out this week:  4Q 2011 Philippine GDPGreece and its private creditors indicated that a debt swap deal will likely be reached this week. The ability of Greece to restructure its debt is one of the key milestones in addressing Europe's debt woes.Iran announced that it might ban the sale of crude to the European Union in retaliation to an EU embargo on Iranian oil. How Iran will react to growing international pressure over its nuclear program will definitely affect the price of crude. Iran is the second largest OPEC producer after Saudi Arabia.Other Economic & Corporate News: 1. Balance of Trade 2. More privatization from BCDA 3. Another casino complex rising 4. JG Summit's tourism push 5. MRT 3 subject to competitive bidding but . . . 6. Jollibee acquires SuperFoods 7. Beacon Electric acquires additional stake in Meralco 8. East West Bank IPO Click here to read more. January 24, 2012 Why 2012 will be a better year. In our January 09 newsletter, we noted that 2012 may surprise a lot of people in terms of growth. We believe that the Phil. economy will grow above the 4.7% Bloomberg consensus forecast. What sectors will likely shine in 2012? Infrastructure, gaming, energy, retail and mining. Click here to read more. January 11, 2012 We may be in for a pleasant surprise in 2012. Officially, the government is projecting our GDP to grow between 5.0% - 6.0% this year. A lot of economists are saying that this projection may be too optimistic. Actually, the consensus estimate is only 4.7% based on Bloomberg data. However, a number of developments in recent months have convinced me that growth this year may be higher than expected. What is the basis of my optimism? Click here to read more. December 20, 2011 Philippine Macro Environment Continues to Improve We normally cannot have our cake and eat it too but apparently this is the way things are evolving. Despite strong inflows from remittances and from the IT/BPO sector as well as increased lending from the banking system domestic liquidity has been easing. Foreign currency inflows, especially remittances and to a certain extent income coming from the IT/BPO sector, are mostly exchange for pesos which increases the amount of money in circulation as well as boost the savings of Filipinos. Furthermore, when banks lend money this process likewise expands the money in circulation. So how come domestic liquidity is easing? To learn why, Click here to read more. Also inside: 1. Exports continue to weaken 2. S&P raised its credit outlook on the Phil. to positive from stable 3. Impeachment case versus Chief Justice Corona, SWS Survey & PPP Projects 4. Corporate news December 12, 2011 Investing Rules I am a big fan of the hit CBS TV series NCIS or Naval Criminal Investigative Service. The main character in that series, Leroy Jethro Gibbs played by Mark Harmon, has a set of rules that he encourages his field agents to follow. Gibbs' rules are not originalyet very practical especially in the dangerous field of criminal investigation. Investments, like criminal investigation is also a treacherous environment. Investors need to follow certain practical rules in order to succeed. The following set of Investing Rules are not original ideas but are based on my readings and, more importantly, from my experience as an investor. I view this list as a work-in-progress which I intend to modify if circumstances require. These rules have guided me in making the right calls most of the time. I hope it will benefit you as well. Also inside is the latest development in Europe. I believe that it is good news for investors. Click here to read more. November 29, 2011 Investors continue to be battered by strong headwinds coming from Europe What was originally viewed as a problem in Europe's periphery has now moved dangerously into its center. The reason why the problem has festered is due to Europe's refusal to take drastic steps to address the creeping contagion. In order to calm markets, investors would like to see: 1. A more robust European Financial Stability Facility (EFSF). This has been partly accomplished when Europe's leaders agreed to leverage the EFSF. 2. A more pro-active role of the European Central Bank (ECB) . This would mean, among other things, allowing the ECB to raise funds via the issuance of Euro bonds. The funds would then be used to buy distressed sovereign bonds with the aim of keep Euro bond yields low. This strategy is very similar to the Fed's quantitative easing program. Largely due to political reasons, the second proposal is strongly being opposed by German Chancellor Angela Merkel. Frau Merkel said that the Euro bonds are "not needed and not appropriate". She said Euro bonds would "level the difference" in euro region interest rates. "It would be a completely wrong signal to ignore those diverging interest rates because they're an indicator of where work still needs to be done". In other words Germany (the Eurozone's largest economy) does not want to further foot the bill until substantial reforms are underway in Europe's profligate governments. Moreover Germany remains reluctant to further open its purse unless fiscal integration is enhanced. These are the quid pro quo being demanded by Germany. While Germany's position is understandable there is a clear danger to this approach. The longer Germany procrastinates, the deeper the problem becomes which could ultimately threaten the stability of Germany itself. Not our problem but . . . These may not be our problems but we continue to suffer from their ripple effects given the interconnectedness of financial markets. Fortunately for the Phil. the negative impact on our markets is being mitigated by improving domestic fundamentals. Click here to read more. November 9, 2011 New Issues from First Metro Investment Corporation and Philippine National Bank
October 25, 2011 What happens when the government makes a mistake? Like ordinary mortals, the government does commit mistakes. But what happens when an individual or firm acts on the basis of a government ruling that would later be deemed as not consistent with law and therefore null and void ab initio? This is the situation that is obtaining in the recently matured Poverty Eradication & Alleviation Certificates (PEACe) bonds. The case is now with the Supreme Court. October 18, 2011 Some measure of calmness A measure of calmness has returned to financial markets as investors remained hopeful on improving prospects in Europe and in the United States. Phil. financial markets continued its mild recovery on encouraging news from overseas. Local stocks chalked solid gains as it rose by 3.6% to close at 4,153 Friday. ROPs (US dollar & Euro denominated bonds issued by the Phil. govt.) rebounded strongly as well. Prices of benchmark bonds (ROP 4% due Jan. 2021 & ROP 6.375% due Oct. 2034) were up by around 130 and 320 basis points week-on-week. Even though yields are already quite low, local bonds still managed to advance. The yield of the 10-year govt. bond dropped by 11 basis points to 6.0% from 6.1% previously. June 13, 2011 Will the NAVPU rise of fall tomorrow? This is a familiar question which we often encounter here at Trust Banking Group. The queries normally increase especially if the market is correcting. Unfortunately however, we do not know the precise answer to this question. More under the Section UITF Performance. May 30, 2011 Slower Growth Indeed As we were finalizing this issue, the govt. announced that the economy expanded by 4.9% in the 1st quarter, well within the expectation of most observers. We actually expected a slower growth this year since certain drivers like govt. pump priming activities, election related spending and a strong rebound in manufacturing activities, which were present during 1Q 2010, will not anymore be that strong. We thus expect economic activities to normalize in 2011 before taking-off again in 2012 as PPP activities kick-in. May 23, 2011Forward Looking Perspective Whilst it is instructive to look at historical price performance, what is more critical is where a particular asset class (e.g., stock, bond, commodity or currency) is headed. May 16, 2011 The Season of Mergers & Acquisitions Recent M&A activities in property (e.g., 60% acquisition of Fil-Estate Land by Alliance Global), in telco (e.g., the acquisition of majority stake of Digitel by PLDT), the farm-in of Philex Mining into Kalayaan has enlivened the market and increased the speculative fervor amongst market participants. May 09, 2011 Advice for the Young at heart Global growth eased sharply in April following slower growth in the US non-manufacturing sector as well as a steep contraction in output of Japanese manufacturers and service providers. April 25, 2011 Happy Easter to everyone. Normally, when we talk about investing the first thing that crosses our mind is the level of return to be achieved. April 18, 2011 Three important news flows caught our attention last week. These are (1) merchandise exports; (2) inflation; and (3) remittances. April 04, 2011 Consumer confidence dips in 1Q amid rising oil prices & tension in the MENA region. For the current quarter, the reading was -23.1% versus -8.5% during 4Q 2010. The survey was conducted during the period March 14 – 21 thus capturing the on-going turmoil in the Middle East & North Africa (MENA) as well as the devastating earthquake & tsunami that hit Japan. March 21, 2011 The recent tragedy that struck Japan as well as the ongoing crisis in the MENA region have raised questions as to the prospects of (a) remittances; and (b) overseas employment. March 07, 2011 Headline inflation jumped to 4.3% in February a sharp acceleration from the 3.6% reported in January. The increase was largely due to higher food and energy prices. February 28, 2011 Remittances & the MENA crisis By now our readers should be fairly knowledgeable with regard the importance of remittances to the economy. February 21, 2011 Major, major concerns Investors are currently preoccupied with two major concerns -- first is the threat of inflation and second, potential geopolitical contagion. February 07, 2011 Great news that went unnoticed Despite El Niño and the contraction of government spending during the 2nd semester, the economy still expanded by 7.3% in 2010 from 1.1% in the previous year. January 31, 2011 Nov. imports surged by 35.3% to USD4,944 bringing Jan. Nov. total to USD49,770 or 27.1% higher compared to the same period last year. January 24, 2011 Good news & bad news There is now a growing consensus that global recovery is firmly gaining traction to be led by emerging market economies and the US. January 17, 2011 Merchandise exports eased the fastest in Nov. to 11.2% from 27.4% in Oct. Exports started very strong during the early part of last year but has since decelerated on slower global growth and from higher base effects. January 03, 2011 2010 was a great year for financial markets. Prices of most asset classes rebounded as our recovery slowly gained traction. For the first 9 months of last year (9M10), our gross domestic product (GDP) expanded by 7.5% on the average. This growth would not have been possible where it not for supportive conditions such as benign inflation, a low interest rate regime and a relatively stable peso. |
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