Philippine Stock Market Research

External Factors Affecting the Philippine Stock Market

November 14, 2010

MSCI recommended China and Korea over the more expensive Southeast Asian (SEA) markets last week causing the PSEi to melt in the 4,000 level.  The US Federal Reserve is also printing billions of dollars to buy USD600 bn worth of long term treasury bonds or USD75 bn worth of long term treasury bonds per month until June 2011.  With interest rates easing in the US as an effect of this, this is also seen to cause an influx of hot money in search of higher yields into emerging markets such as the Philippines.

We welcome the first development as an opportunity to catch solid stocks at favorable prices.  We don’t know how low stock prices will go but if we have a wish list of prices, they are SM at the lower PHP300 level, URC at at the lower PHP20 level, AMC at the PHP7 level, AGI at almost PHP7, AEV at almost PHP15, SMDC at almost PHP3 and JFC at almost PHP35.  These prices may look crazy.  We reiterate though that this is a wish list of prices.  Nevertheless, it is something relevant to watch out for as we don’t exactly know how strong the meltdown is on current stock prices.

The second development in the medium term will be good for a PSEi run-up.  However, in the long term, it may not be that good as it can cause stock prices to become very expensive.  The PSEi might become a growing bubble that may eventually burst.  Below are charts of corporate bond yields and the PSEi from end-September to the present.

The inverse relationship has been holding except for the week when MSCI called a Sell on SEA.  The PSEi just retreated to where it was in end-September 2010.  So what is the current strategy arising from all of this?  Catch the falling stars we are wishing for if you can.  We are in the business of investing and not speculating, and we are always after value-enhancers in our investment portfolio.

Pymwymi Fund Performance

The Pymwymi Fund is up 67.4% while the PSEi is up 35.7% from the start of the year to November 12 , 2010.  The Pymwymi Fund’s performance notably bests two ICAP Stock Funds with the highest year-to-date yields.  They are the First Metro Save and Learn Equity Fund, Inc. (up 62.04% from the start of the year) and the Philam Strategic Growth Fund, Inc. (up 51.47% from the start of the year).


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