The information contained herein is based on sources which we believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. This firm and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.

Fetching money
by Gregg Adrian R. Ilag
Friday, January 27, 2012

The market theme of the past week was profit taking as investors fetched money by selling stocks. The Philippine main composite index is down 1.43% week on week to 4,680, the broader All Share index is also down 0.76% to 3,169. The Property sector led the decline with -1.86%, followed by Services (-1.74%), Holdings (-1.42%) and Financials (-0.95%). The Mining and Industrial sector outperformed the market by gaining 1.35% and 0.87% respectively. The holidays in other foreign markets also dampened the momentum of the local market during the start of the week, although foreign buying still remains strong with only 3 sessions having net foreign selling this month. The market's movements this week was also influenced by several events abroad, these are the Euro zone's debt saga and U.S.' economic recovery.

The struggle of containing colossal debt continues on for Europe. Greece asked for more relief from bond holders, it was hoping to replace the old bonds with new ones that had lower interest rates. This means that creditors will have to suffer more losses, thus bond holders disagreed on the terms of the debt swap. The stalemate on the debt swap raises concerns over Greece's ability to pay the next tranche of debt due on March 20. The potential debt swap will decrease the country's debt to GDP ratio to 120% from 160%. Given the current scenario, the crisis will likely take its toll on the global economy. The International Monetary Fund (IMF) lowered its forecast on global economic growth mentioning the consequences of the Euro zone debt, roughly 2% of the growth can be taken away by the crisis according to IMF.

The U.S. Federal Reserve (central bank of the U.S.) committed to keep interest rates low until 2014, this was longer than their previous statement. This was good news for investors although the optimism didn't last long because of the poor economic data. The latest round of economic data in the U.S. was disappointing. Unemployment claims came in line, while new home sales and the CB leading index disappointed expectations. The CB leading index came in at 0.4% which is lower compared to the 0.7% consensus. New home sales posted a 307,000 increase which is also lower than the consensus of 321,000.

Heading into next week, local investors will be watching the Philippine GDP results. NSCB is set to have a press conference on Monday (Jan. 30) to explain our country's performance for the year 2011. We think that GDP will grow by 4% in 2011, given the weak 3.6% growth in the first nine months. The government targets at least 4% in 2011 and between 5%-6% in 2012. Foreign news will also have effects on our markets; The world economic forum will be influential to the global market sentiment next week. Central bankers, business leaders and other influential people will be there, the different comments of these people will set the market tone for next week. U.S. will also release the closely watched non farm payroll, the last results of the non farm payroll are very encouraging as it beat estimates. It posted an increase of 200,000 which is higher compared to a consensus of 152,000. Lastly, news relating to Europe will likely keep the market on its feet.

Fundamentally speaking, PSEI at its current level is quite expensive. The market P/E at this level is 16.44x, this is near the upper P/E band of the index at 17.35x, which is based on trailing P/E. In terms P/BV, it is 2.54x, which is also near the upper band of 2.58x. The average upper band of the index is 4,774, in our view this shows that the upside of the index is limited in the near term. From a technical standpoint, the index could fall to 4,542.11 which is a 38.2% retracement from the high. Momentum indicators also look a bit bearish in the near term, stochastics look oversold and RSI shows a small bearish divergence on the all time high of 4,756. If the index breaks the 38.2% retracement, the next target would be 4,4480.39 (50% retracement).

We advise investors to be very careful in buying index stocks at these levels, it is best to wait for lower index levels before buying certain stocks. We expect the index to be in a range for the coming week after the January effect lessens.

Back To Top

  Read our Privacy Statement.