No Cause for Alarm by Gus Cosio

Wall street is up three days in a row strongly driven by what has progressed in Europe as the Greek parliament legislates very tough auterity measure. Last night’s rally in both the DJIA and the S&P 500 was lead by a surge in the prices of banking stocks. It may just be investors taking a sigh of relief over an averted bankruptcy which would have been the first European country to go under. In spite of Greece’s apparent resolve to put its economic house in order, the worst is not yet over. We have to see their economy survive such draconian measures which include increasing VAT to 23%, raising property taxes, and putting a levy on all luxury items such as yachts and swimming pools. I hope the cure is better than the sickness. What has this got to do with Philippine stocks? Well at least, we can temporarily forget about a soveriegn contagion in Europe which means that accelerated paring down of global portfolios will be slowing down. This comes on the back of a Morgan Staanley upgrade of investment rating for the Philippines from underweight to equal weighting to the MSCI Philippine index. This means that portfolio managers following Philippine stocks who have lowered their market exposure earlier this year, are now looking to increase their holdings. The irony of it all is that the Philippine Supreme Court recently ruled that PLDT’s ownership only considers common stock and not preferred. What this does is it raises the percentage proportion of foreign holdings in TEL since many Philippine nationals hold preferred stocks through the old subscribers investment program (SIP) of the phone company. As a result, foreigners and locals alike dumped TEL yesterday although the company itself is filing an appeal on the SC ruling. There are serious implications if the SC does not reverse itself on this foreign ownership ruling because other companies such as GLO, AC and ALI, just to name a few, had issued a special class of preferred shares in order to address foreign ownership issues. Unfortunately, while this SC decision hangs over the head of Philippine stocks, we may see a drag on prices as it dampens the appetite of foreign investors. It is unfortunate that it comes at a time when the country is experiencing significant improvement in its risk profile as indicated by improvement in credit rating by Moody’s and Fitch’s. I am quite hopeful that the wave of local investors can pull the mearket through. Yesterday, I was at an economic briefing and the availability of financial investment funds owned by Filipinos is enormous and most of it is sitting in special deposit accounts with the BSP. All this money is earning such a low yield and I continue to think that a good portion of this money should trickle into stock investments. The market is cheap and opportunites abound , particularly in the mining sector. I am still enthusiastic about LC/LCB and the recently revived interest in ORE. I would continue to watch NIKL, AT and MA/MAB. Recently, I saw price movements in BC and DIZ which could signal even greater interest in the sector. In other words, If there is problem with TEL today due to legal and regulatory issues, there are other stocks to choose from. Mining to my mind presents a very exciting alternative. No real cause for alarm here