Market Watch: August 2013, QE Fears Anew

[August 28, 2013 Update] Aside from the reasons below,  the conflict in Syria has dampened investor sentiments when U.S. announced it is considering the use of military force in Syria after the Syrian government "crossed the line" by using chemical weapons against the rebels. More than 1,300 people died, including women and children in the said attack. This indicates a new war is brewing.

Isn't War good for the economy?
Well, yes and no, but generally no. Some corporations may benefit from it directly or indirectly, i.e. U.S. buying supplies needed for the war, higher oil prices, etc., but the general economic impact is negative, like what is learned from the war in Iraq. Economic uncertainties, less investors, higher government debt, money spent on military is better spent on health care, education, etc.

Other factors causing the downtrend market
U.S. will reach debt ceiling in October.



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[August 22, 2013 Update] FED has announced support for tapering QE (see more information below). Philippine stock market is down more than 6% in the first hour of trading this morning. Below is an entry posted two weeks ago for the downtrend we are seeing right now. The downtrend may not be over but it may be an opportunity to buy your favorite stocks below 6100 PSEi points.
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Asian stocks fell this week as U.S. Fed officials failed to clarify when will it start cutting down its quantitative easing (QE). Not to mention August is the ghost month so we might really expect a downtrend in this period because of the market uncertainties.

Why are we affected?

We live in a global economy. If U.S.' quantitative easing is tapered, there will be an outflow of hot money from emerging economies, including here in the Philippines. It will trigger a major sell off to liquidate the funds and this will affect our stock market. A chain reaction may likely occur to sell more stocks if the stock market goes down because investors want to protect their assets by liquidating. If it's overly done, there might be a panic and the effect will be catastrophic because stock market will continue to fall. This is what happened in the Asian financial crisis of 1997. We hope we do not experience it again. 

What to do?

This is a period where you need to be vigilant. Watch out for news relating to QE. U.S. Fed hints that it will start cutting down its QE at the end of this year (2013). Depending on how and exactly when they taper it will affect our market (positive or negative, probably leaning on the negative side).

Investment in stocks and funds that are in equity will be most likely affected. What I will do is cut back in my monthly investment in these vehicles until the uncertainties become manageable. In other words, I will NOT yet sell or liquidate and continue to hold my positions unless a financial crisis is triggered. I'm not saying you follow the same strategy, but this is just to inform you to watch out for the upcoming events that will unfold that may significantly affect our market.

Market Watch is a free market assessment from Pesobility. It tries to explain why the stock market or the bond market is up or down, the factors affecting the trend, and a recommended plan of action.

Philippine stock market down due to fear of US recession

Good morning! The down market experienced in the past few days (Feb 21-22) was caused by fear of US dipping into recession again because Feds stated it might change its Quantitative Easing[1] policy which economists said will cause a bubble that might explode 2-3 years from now.

Many are scared in RP because they interpret it as an immediate burst, and fear that 2008[2] might happen all over again.

This shouldn't be the case yet because 1) US Fed has just announced that it might change its policy; that's still far from implementation, and 2) even when the policy starts, only then will the asset bubble start to build up again and explode around 2 years after.

Hopefully when this is realized in the Philippines, stock prices will start to pick up again. If the market correction continues next week, it might be an opportunity to buy your favorite stocks.

Disclaimer: This is based on research and personal opinion. This analysis might not be very accurate.


[1] Quantitative easing is the pouring of federal funds into the financial system in an effort to save it from crashing. This stabilized the US economy for a short while but seems they are becoming dependent on it which is not good in the long run.

[2] 2008 was the year when the US housing bubble bursted which caused the financial crisis and the largest price drop of stocks in recent history. Other markets are affected since we're living in a global economy. Here in the Philippines, we also felt a big price drop in stock prices.

Another All-Time High for PSE, passing beyond the 5,800 mark

In my previous post, I said that a healthy correction happened yesterday. A correction or retracement or reversal describes when the market goes down after it has gone up for a period of time.  It seems like a good retracement indeed, the Philippine Stock Market index today breached the 5,800 mark.

Even foreign investors are putting money in the Philippines except for Nomura. Though he's right in saying that the stock prices are becoming expensive, I believe the options are not yet exhausted though. There are still undervalued blue chips in the market. Probably a good time to invest in these because investors are now eyeing them.

For the month of December, my fearless forecast is it will continue to go up probably up to 5900+ by end of the year. Though I find it worrisome that the stock market is rising up too fast. Come January, we may see some large corrections until the market can breathe again.

DNL IPO on December 12

People who do stocks are all-eyes on D&L Industries, Inc. (Symbol: DNL) tomorrow, which will commence its initial public offering (IPO). Almost always, IPO's are hyped probably because it doesn't happen always, although this year there were already several companies who IPO'ed prior to DNL: GT Cap, East West Bank, Coal Asia, and Yehey (Although technically, YEHEY listed by way of introduction and is not considered IPO).

If there's hype, there's demand. DNL will be priced at P4.30 when it opens tomorrow, December 12, 2012. I read that it's over-subscribed; it means there's a strong demand. I didn't compute the P/E on my own but I read it's around 13.35. If it's true, the price is about average but on the lower end because P/E's are usually 16-17, but it should be compared with PE's of companies in the same industry.

I haven't participated in any IPO's yet, but I have already observed two. It's always hyped, and it usually goes up in the first day of trading, maybe even a few days after, then tumbles down after. DNL is a big company. It manufactures food additives and supplies large restaurants including Jollibee and Max's. This alone can attract attention and boost the hype.

For those who didn't have the chance to subscribe to IPO price, maybe you can buy tomorrow if the demand is good. But as with any IPO, I wouldn't advise you to hold it for too long until track record is proven, who knows, DNL can even be a blue chip someday.

And to add even more to the hype, DNL even have a countdown timer in its website:

Note: this is just an image and it is not working

Will Santa Claus Rally Start Soon?

In the stock market world, there's this thing called Santa Claus Rally. It is the rise of stock prices in the month of December. People are generally happy and have more money during this time of the year; thus people tend to invest more. It is also during this time when additional trades must be done for tax reasons.

Image from financialpost.com

The Philippine stock market is down 36 points today. It shouldn't be much of a worry, hopefully it is a healthy correction from the fast rise of the stock market last week. Let's see what happens tomorrow. My trades so far are producing fruits, thanks to the support group in the office who started way way before me. Currently holding MEG, MWC, UBP and AEV.

So will Santa Claus Rally start tomorrow? Nobody knows!