Investing in the Philippine Stock Market

June 28, 2000

Boring

It was just another non-event of a trading session. Trading was sparse and benign, seemingly oblivious to the non-compelling news for the day. It has been this way for a while. The desensitized investing public already knows of the US Fed's efforts to slow down the US economy, of the Mindanao situation stalemate, of our impending fuel-price doom, and of Lucio Tan's doubtful motives for PNB.

Quantitatively that translates to a value turnover level of just over P873mn, much in tune with the recent days' disinterested levels. For a change though, the index registered a 1.64 point gain. It wasn't much, but it did break the seven day losing streak of the market. Market breadth wasn't any more conclusive with a virtual draw of gainers and losers - with 42 issues for the former, and 45 for the latter.

Among issues that saw action were PLDT which gained P5 to P775, MBT which slid a peso to P203, AC which eased P0.20 to P7.7 and SMCB which closed unchanged at P52.50.

In a picture of perfect irony, LND earlier announced that its net income for 6 months to March 31, 2000 reached P95.29mn, or over 17% last year's P81.03mn on the back of a 7.8% improvement in revenues to P515.25mn, after the SEC threatened to delist the issue on the grounds of its delinquency in submitting its reportorial requirements with the body. From a trading perspective, LND basked in innocence and remained untouched the whole day.

Musings

We don't expect the market to shake off its sluggishness anytime soon. As we've mentioned before, inertia is keeping the market in a range too tight to almost become tradable. The news that we are being fed day after day no doubt seep into the issues' prices, but we believe these are just mitigating events. What the market needs is one strong stimulus that will place all these other stories in context of the big picture. When it does come, an upsurge may be in an offing as the negative impression imprinted in investors' minds by the still unresolved Mindanao situation has dampened prices enough. In all likelihood, it will probably be a major Internet upheaval for the market as studies have shown that most companies are already scrambling for presence. As such, we would expect a lot of major announcements by the end of the year. Patterned after the US, we would expect your basic communications and media convergence, white-hot B2B ventures, and the mushrooming of end-to-end web services.

June 26

Inertia

The trading climate has remained consistent for over a week now with today's 10.73 point drop which thus brings the main index' declines to 37.31. With no volatility to spur prices to attractive trading levels, trading activity has declined significantly even relative to the recent weeks' dry levels. Value turnover for the day just reached over P628mn on the back of selected blue chips. With no fresh IT-related announcements from third liners, speculative activity has likewise momentarily died down, in tune with the rest of the market.

SMC has won acceptance for 96.63% of J. Boag with its A$1.65/share offer. Under Australia's Corporations Law, San Miguel can compulsorily acquire the remaining shares, having reached the 90 percent acceptance threshold. As we've stated before, the importance of the acquisition of J. Boag to SMC is more strategic than directly financial given the poor balance sheet of J. Boag. SMC however is paying for time, since buying into an established company means instant access to large foreign market. The news drove investors to trade the stock, but it nonetheless closed unchanged P52.5.

MRC announced that it had entered into a share-swap agreement with Grocerific, an on-line computerised grocery delivery firm as part of the company's efforts to diversify. MRC has thus acquired 60% of the firm although the final terms of its entry would be drawn up after it completes its due diligence. MRC was up 3.28% To P0.63.

Pre-conditions for a rally

With the pace the market has been going, it will take quite a while before the 1,500 support level of the index will be reached. A few analysts would contend that a potential US rate hike may again influence the market. We believe otherwise, that domestic issues would in fact take precedence. The continuing tension in Mindanao will no doubt reflect on the employment and investment levels in the region in the coming months and perhaps even on the profitability of companies whose main markets are in the south. From the SEC figures regarding investments and business closures released earlier, it would show that we're coming from a bad base already. In order to have a more optimistic market, the government would have to convincingly and permanently bargain for peace, perform its functions transparently and hope the private sector has enough guts to reinvest money in worthwhile projects as well as for a stable external environment, notably US rates and world crude prices.

June 22

Market Review

The market continued to taper off in a very reserved fashion although stronger signs of a retracement may be just over the horizon. Today's trading session marked the fourth consecutive single-digit decline of the index, although the selling base in terms of market breadth seems to be widening. Out of the 141 issues traded, only 27 advanced while 60 declined. The rest were unchanged. The index has risen over 11% since last month and has just dropped 1.2% in the past week. Therefore there remains room for a drop.

Among the issues that bucked the broad decline was PLTL which earlier announced the signing of its debt restructuring plan with its creditors and mother company PLDT. The arrangement will restructure 37% of the company's debts, moving the debt repayment schedule back making the terms more lenient. A PLDT official said that the same terms will be offered to PLTL's bondholders and Marubeni which lay claim to the rest of PLTL's debts. On another issue, PLTL issued a press release that the company will focus its marketing efforts in its GSM offering, Talk'N'Text. The company's GSM service which makes use of Smart's GSM facilities has been receiving warm reception from the market. At the end of the day, PLTL's shares were up 3.92% to P1.060, but more importantly, volume traded was five times over the issue's 30-day average. This might be a signal that investors are now taking a second look at the issue. PLDT, which will dutifully infuse equity into PLTL to aid the latter's rehabilition was one of today's most actively traded issues, although it closed unchanged at P790.

Metrobank, which was reportedly planning to buy out the public's 10% stake in Solidbank closed down a peso to P205 after opening at a high P208. Solidbank in the meanwhile, was untraded.

Property developer FLI gained another 1.05% today to P1.92, bringing its two week gains to 7.8%. There seems to be a benign accumulation for the issue as volume traded has been steadily picking up while price volatility has been tapering off. A possible reason for the renewed interest in the issue was the central bank's initiative to develop real estate properties owned by banks alongside property developers to kickstart the government's housing program. On a broader view, it would seem that other property developers are returning to the market's favor as well. The property index, which underperformed very heavily near the end of May as the troubles in Mindanao took its toll on the exchange rate, is now almost at pace with the Phisix's rally.

Sun Life of Canada, one of the rare IPO babies for the year continues to be an inspiring issue, as it again turned in a record breaking performance. Gaining P25 to P695, the issue has once again closed at an all-time high. Not to be outdone of course is fellow-insurance powerhouse MFC which also closed at its all time high of P805, via a P20 gain for the day.

Other issues that are not as storied for the day, but just as traded include SMCB (-P0.50 to P52.50), SMPH (unch at P5.5), BPI (+P0.50 to P80.50), AC (unch at P7.8), RPC (+P0.01 to P0.9).

Market Outlook

We expect the index to drift to lower levels in the days, although probably without much volatility given the lack of compelling stimuli. Possible factors that may come into play include the Mindanao situation, given the government's June 30 deadline for the negotiations, OPEC's decision to increase the supply of crude to the world market, and its corresponding consequences in the domestic front and perhaps even the continued ripples being experienced by the financial system's investment houses.

June 20

Market Review

The index was hardly unchanged with a 0.27 slip while market breadth was partially negative as decliners outpaced advancers 48-31. With the index closing at 1560.40, the market has thus closed down for a second day as a few investors continued to take profits following the 41-point gain last Thursday. The NSO's earlier announcement that unemployment in the country reached its 9-year high failed to intensely dampen the market. The same is true for the government's economic managers' prediction of a higher than expected budget deficit for the year on the back of steep expenses to sustain the war in Mindanao. Nonetheless, we expect these issues to be factored into the market in the coming weeks.

Trades today were concentrated on blue chips. AC which is on its fourth rally week slipped P0.10 to P7.90. The company has been making up for lost time by investing a lot into its IT and Internet ventures. Noteworthy activities include the on-line Ayala Center, iAyala, Edsamail and of course the on-line exchange which it recently announced. The other most heavily traded issue was MERB which notched up a peso and a half to P66.50, coming off declines registered last week. Other issues which dominated the trading screens were BW (-P0.30 to P6.3), TEL (+P5 to P795), MBT (+P5 to P210), SMC (unch at P52), SLC (+P25 to all-time high of P665), SMPH (unch P5.4), AHI (-P0.06 to P1.48) and BPC (-P0.10 to P4.2).

Market Outlook

We maintain our stance that the market will move sideways, although recent news seems to indicate a slight downward bias. For one, the budget deficit issue will again be highlighted with the government paying a lot to sustain the multi-front battles in the south, given a backdrop of dwindling revenues from the BIR, poor privatization prospects of government owned companies as well as the implications of these. Without the privatization of PNB the World Bank will withhold a $300mn loan facility. The IMF on the other hand has continually reiterated the importance of meeting this year’s P62.5bn deficit target. Adding another dimension to the situation would be the very high unemployment rate. Pairing this potential lack of funds with the government’s need for fiscal priming to jolt the economy back to lower unemployment levels would depict the tight path that the government has to undertake to improve the economy.

June 14

Market Review

True to our expectations, investors continued to stay away from the market. Index issues accounted for just about P800mn in trades and the index just managed to eke out a 2.36 point gain to 1524.51. The same attitude apparently does not hold for punters, as thirdliners once again had their day in the sun. BW, which has acquired a cult following among speculators, led today's action with over 43mn shares traded -- it's highest volume turnover in a month. The issue closed up 3.23% to P6.4 - it's highest level since late March. It would seem as if BW is headed for one of those runs, although we doubt it would compare to its pre-scandal days. According to news sources, BW owner Dante Tan may sell his shares in BW, reminiscent of his recent cancellation of subscription in AHI shares, or may invite a new partner into the company. Macroasia Corp. likewise had a good run today, opening up 2.4% to P4.3 and in the process chalking up its most traded day in a year, before finally closing down 2.4% to P4.1. Nonetheless, had you purchased MAC at its low late May of P2.32, that would still translate to a 77% gain. One of the outstanding performers for the day was Global Equities which was pushed up 18.75% to P0.76. From its month low of P0.37, that represents a hefty 105% gain. What's more impressive though is that 69% of the gain came within the last two days. Like BW and MAC, GEI's volume for the day was way higher than the issue's average, indicating intensified speculation on the issue.

Changes among the sub-indices were benign as expected with most volatility being displayed by the oil sub-sector (-1.74%) and the property sub-sector (+1.45%). TEL has remained stable, closing at P780 for the third consecutive day. On the other hand, while MBT closed unchanged for the day at P203, the issue seems to be in a downtrend with accelerating volume. A factor that may be contributing to the issue's decline was the increase in NPL ratio of the commercial banking system to 14.46% at the end of April, compared to 14.06% at the end of March indicating a deterioration in the quality of banks' loan portfolio. Comparatively, EBC-PCI has fallen more than 15% from its P58 peso high in May, while BPI - which has a rare single digit NPL level - has risen by more than 8% since its May low. Another issue in a slack-off period is MERB which slid another P2.50 to close at P61.50 today. MERB has rallied by almost 34% in the early part of the month, but now seems to be retracing as it dropped almost 12% since that high.

Market Outlook

Pending any major surprises, the market seems to have settled to its current level. With the rising improbability of a US rate hike following signs that the US economy is slowing down combined with below target inflation YTD, the peso would likely be stable against the dollar. In turn this would lead the BSP to set aside any hikes in its overnight rates. The market itself seems settled with the current rates as shown by the ample tenders in yesterday’s T-bill auction and the BOT’s full awarding. Given a relatively stable monetary scenario, what we would look out for would be the fiscal components of the economy. Remember that with last year’s runaway budget deficit, the IMF has put the government in a tight fiscal leash. Look out for the collection results of the BIR and the BOC. If these turn out to be disheartening, expect the ghosts of privatization to haunt us. The government did include the proceeds from the sale of its Meralco and PNB shares in the deficit computation. Lastly, we’re as skeptical as the next guy regarding the peace talks with the MILF and the hostage negotiations with the bandit Abu Sayyaf.

June 13

Market Review

Market action was dull as the recent lack of violence in the headlines has been fully discounted into the stock prices. This was evident both in the lack trades with value turnover a shade under P1bn as well as the lack of volatility with the index trading in a very tight 6 point range for the day. At the end of the trading session, the index was marginally up 0.22 points to 1522.15 led by a few decently traded blue chips like SMPH and ALI. Any uptick was effectively countered by drops in MBT, MERB and BPC. All other index issues with the exception of PLDT which closed unchanged at P780 were sparsely traded.

BPC earlier announced that it would list a new unit at the Nasdaq in order to raise about $250mn-$300mnm. The unit will be an integrated broadband services company which will act as a holding company for Bayantel and Sky Cable. This would be in line with the company's own convergence plan which includes offering broadband services to businesses and individuals. Part of the proceeds would be used to build high-quality infrastructure for BPC's planned cell phone company. A cell phone arm would augment BPC's telecoms, media and cable interests. On the day, BPC was down 2.44% to P4. BPC has been on a recent decline, coming from a week high of P4.55, but has still shown improvement compared to its month low of P3.55.

Elsewhere in the region, most indices registered declines, following the drop in US indices last night. Singaporean shares fell 2% and Australia's index slipped 1.04% ahead of the May US retail sales figure announcement tonight. The same proved true for the Nikkei which ended 0.39% lower. South Koream shares succumbed to heavy profit taking to drop 4.89%, effectively ignoring the historic summit between the leaders of the two Koreas.

Market Outlook

We don’t expect much action from the market, unless the government pulls off a major political or military victory in the Mindanao situation. While this has certainly not been the worst international exposure that the country has received, it will be likely that foreign portfolio investors will put off any buy orders with that situation as an excuse. The uptick in recent weeks due to the relative calm may have moved the index back up to its equilibrium again and thus sideways action may be expected in the coming days.

June 12 - Nightfall

Oh I can't seem to get over this. Anyway, I'd like to invite you all to look at the new pictures I posted. I didn't really have the time to post these pictures before. They were taken earlier this year, either on my birthday or when I was in Corregidor. Come back soon.

June 12

Independence Day Edition

Ah yes. No work today. I thus have another day to tinker with my site. I realize my site was fast then, but I bet this one will be so much faster. I've cut down the size to just over 2K from 24K the last time. This is likewise my first site change that doesn't make use of a front page application. I'll talk stock market soon enough. In the meanwhile, check out my pages ok. Have a good independence day to you all. I'm outa here...