PESO-COST AVERAGING by Gus Cosio

7:05 pm  Monday  16 August 2010  Philippine Stock exchange Index  3479.67 (+0.29%) Last week, the BSP published loan growth data which showing its fastest pace in June at 9.6%YoY. Loan growth in May was 8.1%YoY marking some acceleration in the pace of loan production.  Some analysts were nurturing a bullish view on bank earnings and the data supports favoring the sector in the next 12 months. Earlier today, MBT reported that 2Q2010 profit rose 43% to Php 1.7 billion from improvement in operating income improved and declines in non-performing loans.  Net income for 1H2010 rose 36% to Php 4.2 billion.  Operating profits for the period before provisions rose 15% to Php 9.8 billion. Net interest income reached Php 13.1 billion in 1H2010, while  other earnings( including treasury and investments) rose 43 percent to 10.3 billion pesos. NPLs in the six-month period were reduced by 4.5 billion pesos, and the bad debt ratio dropped to 3.2 percent from 4.8 percent a year ago.  MBT set aside Php3.8 billion additional provisions for doubtful accounts.  Capital adequacy ratio came to 15.5percent following the Php 5 billion share Placement in May.  Tier 1 ratio rose to 11 percent.  The MBT disclosure follows positive disclosure from BDO and BPI last week confirming analysts positive recommendation of the sector. I think that MBT is the most appropriate surrogate for the sector as a whole.  There were more positive news as remittances in June grew at the fastest pace in five months increasing 8.3% to $1.62 billion.  Growth in May was 6.5% indicating some acceleration.  A Singapore based economics think tank forecasts up to 10% growth in succeeding months. I was thinking that stock prices would slip a little in today’s session.  They were actually quite strong.  MBT, for instance, saw huge value turnover as the big foreign brokers line up a lot of crosses indicating that placements among large institutions are going on.  It does not surprise me since the macroeconomic outlook has somehow improved given the strength of remittances.  I had mentioned a while back that the banking sector was a buy and that MBT should be worth at least 70.  I still maintain that view. The Lopez shares have moved quite strongly in the past few day led by LPZ.  Some of the companies in the group have announced buy backs – FPH, FGEN and ABS.  I guess investors continue to move up to LPZ which is the parent of them all.  My only problem with share buy-backs is what happens when the company stops buying; who will be doing the subsequent buying to hold up prices.  They cannot keep buying back indefinitely so enjoy the ride while it lasts.  Fundamentally speaking, I think EDC will be the best performer of the lot due to the strength of its geothermal business.  FGEN should also do better though my money is on EDC. For DGTL followers, I do not think that it is not a short-term play.  In buying DGTL, you are taking a view that its value will emerge due to its turn around in business results and possibly sustained earnings from here going forward.  That is a view that I am willing to take.  It make take a bit of a wait, but it is a wait worth doing if I see at least a 40% move.  It is like my view on PNB last year.  I have the same sentiment for MPI.  For this reason, my strategy for both these stocks is to accumulate rather than buy my position all at once.  I am willing to be patient and even peso-cost average until returns are substantial. Generally, I am still wary about being fully invested.  I don’t really mind the market moving higher.  I just do not want to be without cash if the market tanks on account of external forces.  The big day for our market is actually August 26 when they release 2QGDP.  If that is a good number, I will not mind being close to fully invested.