Oct 16, 2014 – Winners and Losers

In reality, instead of spewing things you already know, I figured I’d write something more strategic.  Please read this research report made by our analysts for possible investment decisions.

Scenario: Low Oil Prices (Wealth Research Strategists released an article entitled “Winners and Losers on Tumbling Oil Prices, Oct 16, 2014”)  Read the report straight from http://www.wealthsec.net

Chart of the Day

They discuss winners and losers.  Specifically, Philippines is a winner in this “low oil price” environment since we have been a net importer.  I can narrate everything but that will be a breach of conduct so just read it straight from the website.  Be a client to read the reports.

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In terms of portfolio strategy, it really differs based on client’s cash positions but what I can do say is that Emerging markets are holding up very well versus Developed Markets.  Philippines apart from China is actually one of the most resilient markets in terms of price performance despite continuous foreign selling.  Yes, even Hongkong is strong despite the protests.  Mainstream headlines of hard landing and global growth concerns don’t always equate to negative stockmarkets.  This may lead many bears to be skeptical about the Philippines but there may be valid reasons why Philippines is not joining the onslaught.  Many stocks in the Philippines actually benefit from the low energy prices nowadays.

What I can surmise in my very laid back perch is that in this very volatile environment, many investors (large funds specifically) who have patiently been sitting on cash (after taking huge profits from their Telecoms specifically selling their #TEL and #GLO at 3300-3450, 1900-2000 levels) are taking advantage of the current downturn by putting their funds to work.   I believe from an asset allocation positioning, most were not caught flat in their pants with this downturn which is why we don’t see a lot of panic selling.  Even though investors have to grapple with an onslaught of net foreign selling for the past couple of weeks, we are frankly surprised with how strong the leaders have been outperforming the laggards and how local funds are able to accumulate the stocks they prefer and buy back their previous core holdings in these trying times.

Frankly, this low-oil price environment, high earnings growth expectations for 2015 (for a few companies) have made Philippines a safe haven.  Whether it lasts and persists, we do not know but this outperformance is clearly shown.  We don’t want to take for granted this “autism” premium, but we definitely welcome the development for this differentiation.

This is very apparent as the US markets roiled into their new normal (which is basically 200-400 point gyrations in the DJIA or basically 2-3% index volatility with their VIX (or fear gauge ETFs such as #TVIX and #UVXY doubling in values in just weeks.) while #EPHE stayed afloat and even rose 0.3%.  Philippines made bullish divergence today as we ratcheted up from 6,960 to 7,040 or an amazing 80 point rally, closing 37.39 points to close at 7,028.58.  We welcome this amazing resilience of the market without taking for granted very bearish signs on other stocks and external worries.

uvxy

UVXY doubles in price from 25 to 50 in 5 days after Ebola and other persistent fears roiled US markets.

*****

There are valid reasons for these breakouts in the Philippines (Breakout Nation nga tlga sabi ng Morgan Stanley’s Mr. Sharma) –  I am highlighting them so that you’re not sleepy.  When the market was at 5,800 everyone’s a sleepy bear too and we kept highlighting indications of strength.  Here’s one stock which is indicating a lot of strength!

1.) #MER  breaks out of the 6 month consolidation.  This chart is coupled with a lot of fundamental strength.  Study this.  Forget those sleepy bears because they will never participate.  Let them be.

mer breaks out

Foreign Flow +67/144 🙂

Let me also said that 9/10 trading days this stock is foreign bought especially when the market is tanking.  Those bearers of bad news were all tricking you.  Telling you the truth.  This is where money’s going as evidenced by flows, charts and fundamentals.  So far there’s Php325 M parked here and I frankly haven’t heard all the rave and hype in this stock (at least not yet in the decibel 10 levels) 😀

mer foreign bought is not crazy

Must I continue the Leaders versus Laggards Parade?  I think I’ve convinced you enough ever since I started squawking that #BDO is indeed leader.  Today this stock rises to 98 intraday and closes 96.00  The spread has been as wide as P16.00 from #MBT.  I believe there’s a rerating going on.  It used to be that #BDO and #MBT were both trading at the same book values and always a discount versus #BPI.  I believe the market is differentiating #BDO and trading it closer to #BPI valuation premia due to several loan growth expectations.  Nevertheless, do your research.

#BDO gets +63/228, #SECB +22/147

#BPI -96/147

#MBT -17/228

There’s a certain book value differential where the long #BDO, short #MBT trade will not work but the fact is, #BDO gets the flows.  In an uncertain market, you’re better off catching leaders when they fall.

bdo mbt long short very apparent

This inverse correlation started since September 2014.  #BDO 96-98, #MBT 82-83.  There’s a certain point this inverse correlation will get back to normal but we believe that this spread will stay for a long time.  #BDO might go 100 and new highs while #MBT goes 84-85  only.  The 15 peso difference will stay.  It used to be a 10 peso spread, and it has widened.

That “alpha” spread will be discussed by your bank research analysts using ROE, loan growth forecasts.  Differentiation within the space. Winners versus Losers.

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Market has net foreign selling of Php769M on Oct 16, 2014.  The brunt of their selling comes from profit taking or changing positions:

Take a look:

1.) #EDC -201/475 (If you inspect this really thoroughly, foreign buying has been 1 Bil at some point with average costs of P6.00, they’ll take profits but some locals will buy it from them.)

2.) #PCOR -28/90  Goes down to 11.56, low oil prices don’t work well for this refiner and it could stall for a long time. Time to rethink.  This might make a cobweb in your portfolio despite 2015 doubling of capacity.  People are rethinking hence there’s that foreign selling. (Might be a sell on rallies.)

3.) #JFC -82/165 – Foreign wants to sell and why not?  Why pay elevated multiples?  This looks more likely to get beaten down.  Not a safe place.

4.) ALL CONGLOMERATES I REPEAT ALL CONGLOMERATES EXCEPT #JGS are getting sold down.  They’re taken profits from.

#AC -54/184

#SM -81/190

#JGS  – lone leader in the group +52/117 (The URC and TEL effect really helps JGS)

#GTCAP -129/207

#AEV +1.7/108 – So those foreign selling finally finished?  Let’s see if #AP can help the mother make a dead cat bounce.

#AGI -91/168

#COSCO -10/15

#DMC -14/97

Leaders Remain Leaders

1.) #TEL, #ALI and #URC – These three should be a part and parcel of your shopping list.

Manufacturers have low raw materials if oil is falling. #URC +35/878 (Sure it’s expensive, so try getting it when it’s not THAT expensive.)

#ALI +131/584 – Not sure if this is an effect of major funds having ALI in their top holdings, hence an increase in EPHE generally results to an increase on ALI or it’s just high earnings expectations come Nov 15.  Nevertheless, the premium for the Ayala brand has been going on for decades and this “safe” haven parking lot is just getting more love.  This is really a BTFD.  Support rests at 30 (But we aren’t sure if it will really fall to 30 on panic days.)

2.) #TEL +14/1135 @ 3160 I think all the local funds just sold all their #TEL holdings at 3300-3450 which brought about this demand to buy #TEL on dips.  Well, all retail investors also don’t believe the finite internet promo affected the company’s long term prospects and may even help them gain market share in the future for smartphone prepaid subscribers.  Yield at 3000 with a P180 dividend is 6%.  Good for most people.  That 3000 is a mighty support, despite all the paranoia.  Buying 3000 all the way to 2800 thus is a good parking place, even for the most bearish people out there.

Nevertheless, its counterpart duopoly competitor #GLO gets love at 1600 to close at 1650 today. +24/110.  Somehow, the telecoms are just loved.  One’s stronger but #GLO finds itself attractive as well to some investors.

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Gaming getting less liquid.  Profit taking is better amidst the cyclical nature of these companies despite foreign buying past couple of days. Fade the strength.

#BLOOM +9/33

#MCP -3/27

#RWM -2/3.7

You don’t want to be caught flat footed here.  Less liquidity despite an increase in price is not a good sign.  TAKE PROFITS AND GET OUT.

*****

Retail Distributors In general, despite value still are pummelled.  Guess they’re stuck in their consolidations until November 15 Earnings Report. (Sleeping conso phase)

#PGOLD -29/66

#RRHI -22/64

*****

#NIKL -44/139 Because of cyclical nature of nickel prices, some funds have felt they deserve to lock in gains and close their books on this one, deficit or not by 2015.  41.50  (This is a sign of sideways, now if this breaks below 40 and so on, bears will become fiercer reinforcing the importance of diversification.)  Funds generally place maximum of 15% on their mining assets. Diversified portfolios will help weather any drawdowns coming from nickel price volatility.

****

Musical Chairs is getting less liquid +23M on #LRW.  Dunno if it’s a pause or will have to break down but got out.  Will play next time.  2- 2.80 has been quite a run for just 2 days.

#CMT – Follow On Offering And Crosses Helped this Stock. -2.3/25.  No significant selling.  Dunno if this continues upward or pauses but it sure has been garnering waves after the P75M cross at P2.00 and the P23M cross at P2.10

– Faceless Trader

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