The Fourth Quarter 2011 Philippine Stock Market Report

Euphoria Seen to Extend from 4Q11 to the Dragon Year

The PSEi went up in 4Q11 from 3,866 to 4,372.  Investor confidence strengthened due to a slight recovery of the US economy coupled with efforts of the European Union to contain their debt crisis.

The PSEi, however, grew by a meager 2.4% in 2011.  The best Stock Fund that performed in 2011 is the Philequity PSE Index Fund, Inc. with 8.57% followed by First Metro Save & Learn Equity Fund, Inc. with 8.51% and Philequity Fund, Inc. with 6.21%.  Since its inception in January 5, 2010, our Pymwymi Fund has registered a return of 74.6% at the end of 2011.  This is slightly down from its return of 77.3% at the end of 2010.  To recall, the Pymwymi Fund is composed of 15 stocks deemed to have value and resilience.  In 2011, it has proven to be resilient.

In 2011, we also went beyond assessing and valuing stocks.  We now value the PSEi through the PSEi Bands and spot market ups and downs through our margin of safety tracking.  So how did these two new fund management tools fare in 2011?  The PSEi Bands has a return of 35.42% in 2011, while the margin of safety tracking has a return of 9.99%.  This is in the assumption that an investor equally bought and sold the 30 stocks comprising the PSEi according to the instructions of the PSEi Bands and the margin of safety tracking.

Corpecon Research 2011 PSEi Bands Actual 2011 PSEi
Euphoric High (Hold/Sell from Central Value) 4,578 4,564 (August 2, 2011)
High End (Hold/Sell from Central Value) 4,336 4,344 (April 28)
Central Value 4,084 4,025 (April 1)
Low End (Buy up to Central Value) 3,717 3,705 (February 23 and 28)
Depressed Market (Buy up to Central Value) 3,339 PSEi did not go to depressed levels in 2011

Notes:  Introduced and Documented on February 25, 2011

Below is the PSEi Bands for 2012.  Our valuation shows a decline in the central value, low end and depressed value from the 2011 PSEi Bands.  The high and euphoric ends of the bands in 2012 are also higher from 2011.  This is due to the steep decline of corporate bond yields seen many times in 2011 to a low of 3.25%.  To recall, we follow the concept that bonds and stocks are inversely related.  Thus, one asset class reflects the inverse direction of the other.  The euphoric high also notably looks like an outlier at the 5,400 level.  This indicates potentially high returns as long as the investor takes note of the low end and central value of the bands.

Corpecon Research 2012 PSEi Bands

Euphoric High (Hold/Sell from Central Value)

5,479

High End (Hold/Sell from Central Value)

4,756

Central Value

4,034

Low End (Buy up to Central Value)

3,629

Depressed Market (Buy up to Central Value)

3,225

On the other hand, the margin of safety tracking indicates downward pressure on the PSEi in January.  The tracker has spotted run-ups in March and October 2011.  We advise investors to be alert of the safe buying windows in the coming year as volatility may take us for another wild ride in 2012.

Disclaimer

The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.