Nov 28, 2011- Philippines – The Islands of Safety – Perspectives from a bigger picture

It’s been a long while since I last posted any market-related research.  Frankly, I’ve missed creating reports that are actionable for readers too.  Here are some observations that I have in our current Philippine markets.  All views are independent.

Useful Reminders:

1.) Blogging about the markets is not just simply voicing personal opinions but it is about viewing the world in a certain way and sharing it with others.  It’s a communal activity, as Mr. Om Malik of the popular technological blog Giga Om would say.    Hopefully all of you – my super-smart readers who have also become friends – will join me in this journey, and offer me advice, guidance and tips.

2.) Being wrong is as important as being right. What’s more important — when wrong, admit that you are wrong and listen to those who are/were right.

(If you find some views here that contradict, or agree with your own researched views, please kindly leave them in the comments.  I’d love to create connections.  These normally lead me to think of new ideas and new opportunities too.  You can also choose to write an email to me: facelesstrader@gmail.com )

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We are continuously being bombarded with short, near term news and in the process, we are failing to think about the big picture.   We cannot blame ourselves for our often twitching market views though, because as you can see in the image below, we are experiencing extreme volatility swings ever since the last 3 months.

Whipsaw Markets Illustrated

Perhaps most of my Filipino readers can attest that a swing in our currency USDPHP from 44 to 42.50 to 44.00 in just a few months, isn’t quite “normal”, but this has been true for all other Asian and major currencies.  We have been swinging wildly back and forth. AUD went from 0.94 to 1.07 and was last seen trading at 0.9700 and currently swinging upwards at 0.9850 as of writing.

Thus, in my market research today, I’m going to try to stray away from my usual short term nature, into making a weekly analysis of how we have fared in the index, as we near the end of 2012.

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Important Questions of Market Traders and Investors + My Answers:

1.) Should we stay cautious?  Will we be seasonally stronger for December, just like all the other years?  Is there really a December effect?

To answer this- I looked, tabulated and typed the closing prices of the monthly historical charts of our Philippine Composite Index from Year 2001-2011, using publicly available market data to see whether if November is a down market, on whether there are “seasonal” bounces during Decembers.

From the data I gathered, I found that strong rises from previous uptrends tend to have stronger Decembers or at least a sideways December, except if we are in a serious bear market (such as 2002 and 2008).   From 2001 to 2010, we had only 2 bad decembers and 8 up december months, with three of them rising more than 5% in the last month of the year versus November’s monthly close.

So, if you ask me for an answer, based purely on data alone, we normally have good Decembers, and trying to buy stocks merely for that “December effect” has at least 80% chance of either breaking even or making money, rather than losing.

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2.) What would be a good long-term (6 month -1 year) strategy to develop and what are some conviction stocks (fundamentals,technicals) to accumulate for 2012?  

Right off the bat, I tell you I know nothing about what will happen for 2012, but the following are good stuffs I’ve been reading that can help in your decisions.

I don’t know the answers.  If I knew, then I’ll be a trillionaire.   What I can do is to help lead you to the insights that help you answer the questions yourself.  Below is how I think.

Btw, all of my research makes use of public information.  I just predominantly use newspapers and company reports disclosed in Philippine Stock Exchange.  I don’t have any sophisticated broker reports etc.

Here are news clips I’ve read that can be useful:

Bullish Prospects in the Philippines

Macro (Philippines)

1.)  Philstar Reports that GSIS To Hike Placements in Local Equities (From 10.5% to 15%, possibly next year) 

2.) Philstar columnist Valentino Sy of PhilEquity Corner writes several reasons why Philippines has placed gold medal in current world markets.

3.) Check news headlines if I’m wrong, but I’ve read that BPO centers in the Philippines are expanding and hiring more this year.  Definitely bullish prospects.

Micro (Philippine Specific Company News)
2.) Company Specific Bullishness/ Tourism/ Casino Entertainment Themes – (AGI)
Alliance Global Expanding into a Larger and Bigger Resorts World (Inquirer)
I think investors and traders have to look more closely and watch the price action in AGI, even if the chart is pretty much traversing a sideways range.  I don’t know what will happen.  I don’t see a buy signal, nor do I see any sell signal, but if I were simply to just do a peso cost averaging strategy, this company looks something to be investigated upon.
From my previous research in this company, AGI is very much cash rich with 78 billion pesos, and despite all economic forecasts pointing to a slowdown, this company is even expanding in a $1.1 Bil project that’s 3 times larger than Resorts World.  I think you have to check whether Mr Kingson Sian’s optimistic prospects are valid or bubbly.  Do your own due diligent research, and let me know your findings as well.  Do you think its over expansion or prudent use of their cash for new growth opportunities?  Technical price action was an undecided doji in the markets awhile ago with DBP Daiwa eating a lot of shares (Bought 1Mil +) at 10.20, but ending at 10.14.  We’ll see how the market thinks, but keep this in your radar.
Cebu Pacific  (CEB) – Valuation and Buybacks
Normally, if I’m a value investor, I don’t want company buybacks alone to be the sole reason why I like a company.  CEB’s technicals generally stuck in a downtrend and consolidating in the 70-72 areas, and will only be good for people who will accumulate for the longterm. Momentum traders generally avoid this stock.  There have been recent company disclosures that CEB’s management has bought back their shares at Php70.00, bringing their treasury shares at Php 5 Bil +.  I can’t remember where I specifically read the news, but I think one should put this on a radar screen if one’s a value investor.
Metro Pacific (MPI) – Metro Pacific eyes gov’t orthopedic hospital (Inquirer)
The Metro Pacific group plans to scale up its hospital group, currently the smallest in its infrastructure portfolio, into a P10-billion business in five years by acquiring more hospitals and unlocking more values from them. By operating a chain of hospitals, the group can benefit from improved purchasing leverage which in turn could translate to lower prices for patients.
*Just like AGI, I think investors should check deeper into this company, as Manny Pangilinan is making MPI a hospital acquisition warchest.
MEG,ALI – Property counters that have managed to bring positive earnings surprises in the 3Q2011’s report will also be companies that I’d investigate further if I was a value investor.
*As for the Momentum strength leaders such as LC,LCB, PGOLD, I’d just follow their price action, and not care much about the fundamentals.  I’d also consider studying all the MSCI inclusions – URC,SMC,ICT — since fund managers will somehow be buying index-constituents in the MSCI.  I better take a look at the company’s fundamentals and valuations for a long-term peso cost averaging basket portfolio.
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Most lack the conviction to deal with short-term pain in order to do the right thing for building long-term shareholder value. I have trouble myself sticking to long-term, but sometimes, I think a perspective from a bigger picture will help us make rational decisions for our portfolios (especially those with a medium/longer term bent).
On Missing Economists’ Estimates Today –
Watch this video clip in Bloomberg http://www.bloomberg.com/video/81678526/
Even the analyst here admit in the video that they find the Philippines to be resilient, and targets a Php41.00 in the next 3 years.
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Personal Conclusions:
If you take on a long-term challenge, show a deep commitment to the process.  If you take on a short-term view, show a deep commitment to the process of trading the technical price action alone.
Without a doubt, we should be grateful that Philippines remains an island of safety for our trading and investment public, amidst all the panic brought about by the European crisis into all the markets.  Cautious optimism is advised.
Be happy that we are living in an island of safety, peace and beautiful, pristine beaches and shores. (literally and financially)
– Faceless Trader
(I’ll try to write a post on technical views alone and historical broker price action in the next posts.  Thanks)
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One Response to Nov 28, 2011- Philippines – The Islands of Safety – Perspectives from a bigger picture

  1. n. antay says:

    Nice analysis, hope springs eternal.

    Like

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