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Weekly Fixed Income Summary : January 14 - January 18, 2019I find it quite refreshing to the mind to get out of the bustle of Metro Manila, so when I got an assignment to give a talk in Baguio this weekend, I gladly went. I left my house shortly after 3am to make it to Baguio for a 9:30am talk to an event sponsored by FINEX. I drove to Tarlac and made it through both expressways in just over an hour and quarter since there were relative few vehicles on the SCTEX. From Tarlac City, I let the driver take over and slept in the back so at least I would be fresh for my talk. What was nice was waking up to the very cool Baguio breeze as I rolled down my window as we drove into Camp John Hay. The temperature was a lot lower than the air-conditioning inside the car and the breeze coming in as I rolled down the car windows was exhilarating. It was a wonderful way to start a Saturday morning.
I get very enthused whenever I get to promote investment literacy, and the audience of mostly graduating students were more than appreciative to learn more about investing in markets. I hope I made converts of these guys particularly because both mutual funds and direct stock investments are pretty much accessible on line. My personal advocacy is to see a greater percentage of our population involved in capital market investing especially in the next 3 to 4 years when I expect an explosion in Philippines stocks.
One item in my talk was the theory of asset demand which says that the determinants of asset demand are: wealth, expected return, risk and liquidity. An increase in wealth increases the demand for assets (other than cash) be they long term bonds, property, jewelry and most of all equities. Of course, an expected return over the next period on one asset relative to alternative assets increases the demand for the particular asset or asset class for that matter. Risk (an increase in risk) or the degree of uncertainty associated with the return on one asset relative to alternative assets would dampen the demand for the asset or asset class. Finally, greater liquidity or the ease and speed with which an asset can be turned to cash relative to alternative assets would also raise demand for the relatively liquid assets.
We follow various macroeconomic numbers because these figures give us an idea of how wealth is being created in the economy. The stock market being forward looking looks at these numbers prospectively. The same could be said about returns because stock analysts are more concerned about future earnings of forward P/Es rather than trailing although trailing twelve months (TTM) P/E’s are hardly ignored. What I am saying is that the case for greater wealth allocation to Philippine equities is very strong on account of the various factors that converge into greater demand for Philippine assets. Risk for one is being mitigated by our stable currency which even has the tendency to be strong. Likewise, the stable monetary policy and foreign reserve management by the BSP has been recognized as strong stabilizing factors in the economy. Stability reduces risk, and I would say that this is the reason why we are seeing this surge in demand for large capitalization shares in the Philippine stock market. Finally, with the expansion in volume or value traded in the local market partly because of the extended trading hours, liquidity in trading many stocks have been enhanced. These text book principles may have been overlooked and forgotten by many when doing their daily trades. I would suggest that investors keep this in mind especially newcomers to the market because these are age old observations that have worked over time.
One reader asked about the effect of the JGS placement at 25 on the stock. Personally, I think this is very good for JGS as the placement was meant to raise the liquidity on the stock. One reason why JGS has had limited following was because the stock was perceived not to have the liquidity of the other large cap stocks. I think JGS will be on the radar screen of more traders now that the float on the stock is much higher. I previously thought that the upside on JGS was only 30, but I have become a lot more optimistic on the stock and I would not want o put a ceiling on it now.
I also like banking stocks because of the latest cut in reserve requirements by the BSP. I think this is why BPI (+3.7%) rallied so strongly last Friday despite the index tanking 1.3%. MBT (-.74%) was down and so was BDO (-.48%), but this should present buy opportunities. Other banking stocks that require attention are SECB and PNB because I am positive that the lower inter-mediation cost will expand bottom lines substantially.
Lest we forget, mining stocks are also beneficiaries of lower financing costs because they tend to soak up a lot of cash for capex and opex. Of course operating mines would benefit more greatly than non-operating ones. This leaves me very constructive on PX, AT, NIKL, MA and of course ORE and NI. I think MARC and DIZ have had good production levels as well. LC/B is still awaiting its final project plans and the stock will likely be related to the trading price of gold as investors trade LC/B for its gold resource value. Incidentally, OV recently caught my attention with a price and volume spike. There seems to be action as well in the oil segment.
Anyway, I hope the theory of asset demand provides some guidance in asset allocation into the equities market. It was an enjoyable weekend in Baguio especially because I was able to catch a round of golf at the John Hay Country Club. What was really rewarding was the opportunity to touch young minds on the sound points of investing. I think if we keep following the fundamentals of the market, we will all stand to benefit.
P.S. First Metro will be holding an investors briefing for clients on Wednesday 8 February 2012 at the PSBank Auditorium. Please check the various First Metro websites for details. I will be one of the speakers.
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