The Philippine Stock Market Bubble Just Burst
Calls for the Launching of The Irrational Market Series –Points to Take Advantage of in an Emotional Market
November 12, 2013
The Philippine stock market bubble just burst with the PSEi falling to the 6,200 level as of this writing. The September rally initiated by foreign investors fizzled on these main factors: (1) High PSEi PER (2) the Pork Barrel Scam (3) Typhoon Yolanda. The reality of super typhoons is a new normal the storm-front Philippines have to be prepared for. Climate change has affected mother nature to unleash kaijus such as Yolanda (International name: Haiyan). Meanwhile, the pork barrel scam though unsettling, saddening and enraging is part of the pains of Philippine development. System changes for the benefit of not just a few but of the masses and of the entire nation come in one spark. This is bound to happen given the massive amount of funds diverted and corruption caused by the pork barrel system.
Lastly, the PSEi just couldn’t move forward because of 16 stocks that make the entire PSEi and even the All-Shares Index expensive. Before, it was just ALI, SMPH and TEL that are uber-expensive. Now it’s LCB, BEL, JFC, ALI, ICT, URC, AC, SMPH, GLO, SM, I, RLC, BPI, AGI, MER and JGS (in that order). There are actually 36 bargain stocks with PERs of less than 16x and seven stocks with PERs greater than 16x but less than 20x in our 59-stock coverage. These bargain and premium stocks outnumber the 16 expensive stocks, but investors, mostly the big funds, keep on buying the expensive stocks causing a terrible imbalance and inequity of the PSEi. The result is a stalled PSEi with big downside potential. The bubble has just burst, and they keep making that bubble all over again. Equities are supposed to be the choice asset class with corporate bond yields and even the PH10YTN rate softening. The high PSEi PER of 18x just makes the funds fly over to our low PER neighbors HK (10x), SG (13x), TH (15x) and even VN (12x).
It is this imbalanced and inequitable market that made us launch the Irrational Market Series. This is a series of write-ups in Corpecon Research Facebook and Twitter that highlights strange occurrences that we as value-investors can take advantage of. The series started with TA. TA’s share price dropped on the planned pull-out of 60% owner, BHP Biliton, from the SC55 group. TA does not even make money on oil but on power, and it owns 20% of MGI which has a 20MW geothermal power plant commencing commercial ops November 15. The series continues with a stock trading below Cash Per Share at USD0.81 to a dollar. Strange thing is that no one’s buying even at that rare discount. You can see the Irrational Market Series in our Facebook and Twitter accounts for your long-term investing advantage. Be Rational.
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