MWC to be replaced by MER in Philippine Stock Exchange Index (PSEi)

Effective March 17, 2014, PSEi will have a recomposition, Meralco (MER) will replace Manila Water Company (MWC) in the stock exchange index.

This is based on a memo released by the Philippine Stock Exchange. There's no specific reason stated in the memo why MWC was booted out. It just stated the general qualifications to be in the PSEi list:

1. Free float level >= 12%
2. Top 25% by median daily value / month for at least 9 / 12 months
3. Top 30 on full market cap (MCAP)

So I guess it's more of Meralco has beaten MWC with one of the criteria above.

Q&A: Choosing between COL or BPI Trade online broker

Hazel says

Good day! Your blog was very informative regarding your stock recommendations. I'm a newbie when it comes to the stock market. I'm planning to invest in stocks but still don' t know if i'll choose col or bpi trade.

Hi Hazel, thank you for visiting. For your first question, you can also consider First Metro (under Metrobank). This is my broker and so far I have no complains about it. If you're really choosing between BPI Trade and COL, I would suggest to choose COL in general. I have officemates who use COL and BPI Trade, and BPI Trade tends to have a lot of down time since it's a very old system, and many times you might get frustrated like my officemate.

But I'll tell you two reasons why you would consider BPI Trade, and these are deciding factors for some, especially those who have a lot of money:

1. The cash you don't use in stocks earns interest (same as a normal savings deposit). This is a great convenience, but it's only useful if you have a lot of money, like at least 5M, and you actively trade your stocks. For example, there are times that you sell all or a big chunk of your portfolio, probably because you feel that the stock is already overvalued or there's a crisis. During this time, the money is just parked in your account. Parked money in First Metro and COL accounts, AFAIK, do not earn interest, but BPI Trade does. So if you have 5M parked in your account, you'll probably earn around 4,000+ Pesos per quarter (rough estimate). Not bad.. can be used to buy groceries.

2. Odd Lot Trades do not impose the minimum P20 commission rate. There are fees when you trade stocks, it's usually 0.25% or P20 whichever is higher. If you're not familiar with odd lots, it's simply the trades below the minimum unit of trading. For some who's into odd lot trading, this is a great advantage, but for usual people, this is not that useful.

The above two are the advantages of BPI trade over the others, but I'm guessing you won't be needing them that's why I would suggest COL or First Metro in your case.

For your financial questions, feel free to email me at manny@pesobility.com and I will try to answer them as soon as I can.

Market Watch: An Unexpected Outcome [September, 2013]

Today, the Philippines, including many markets all over the world, is enjoying hefty gains from an unexpected turn of events when U.S. Fed deferred tapering its stimulus program. As of writing, the Philippine stock market is up > 3%, the reason being, that the tapering has been priced in even before it was implemented. Now that it has been postponed, the market adjusts accordingly (in this case, it goes up).

If you have followed the advice from Pesobility's previous entry to buy your favorites below 6100 PSEi, then you should now be reaping your rewards. However, when to sell is completely up to you. Sell now, wait a little more or hold for long term? It will depend on your personality and risk appetite.

What now?

It is most likely that today is an overreaction to the news, so we might expect a minor correction in the following days. The QE tapering is just deferred and no one knows when it will be implemented, but the estimate is it will still be this year so we need to be vigilant about it. In my personal opinion, the general trend is now upwards upto 4th quarter this year (unless there's another crisis).

Before today, you should have something in your portfolio, I wouldn't advice buying today and going with the flow. My personal take is that I will continue what I already have now that the market can now breathe a little easier. I'm still betting that the Philippine Stock Market will rally in 4th quarter to reach my target 6800 points. And when 6800 points has been reached, my strategy will then depend on what's happening. If our market skyrockets beyond 7000 this year then I might probably sell because we are now again in the high P/E levels. But that's just my personal opinion. Don't take my word for it; I urge you to do your own research.

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.

The biggest PSEi drop in recent history, what happened?

It has been a bloody market today. The stock market dives to 6,114.08 or -6.75%, the largest drop since 2008. Why is this happening despite our emerging economy?

To explain this, we have to look what's happening outside the Philippines:

Japan's Stock Market Plunge 

Japan contributes largely to the worries in the Asian financial market. Nikkei is down by more than 6 percent  today. The drop is among the many we've seen in the past few weeks which ultimately caused Japan to officially enter the bear market. Everyone is cautious on what's may happen next.

The quantitative easing of its central bank is backfiring, plus other global economic worries (below) also factor in.

U.S. Fed to Lessen QE 

Quantitative easing (QE) is a solution that the U.S. government devised to save its economy from crashing. It does that by buying billions worth of bonds each month in order to stop the prices from free-falling. This was proven effective in the short period it was established, but now, the market seems to be dependent on govt's stimulus. There's a lot of uncertainty what will happen when the govt stops quantitative easing. This uncertainty breeds fear, which in turn, drives the stock market down. And when the U.S. stock market falls in this global economy, everyone also falls.

China's Economy is Slowing Down 

China is the industry engine of the world, almost everything is made in China. When China reports that its economy is slowing down, it reflects that the global demand is slowing down which again invokes fear and uncertainty.


There are a lot of uncertainties in the global market, not to mention the economic problems in Europe. These uncertainties multiplies the effect in our stock market today triggering a major sell-off. Closely monitor what happens to Japan, U.S. and China and you'll have an idea what will happen to the global financial economy and how it will affect the Philippine stock market.

I believe we area nearing a global financial catastrophe if this continues and if there are no positive news to impact the market. Fortunately for the Philippines, we may still have an ace card: MOODY's upgrade rating which is expected soon, will it trigger a reversal from our market slump?

What is to be done during these times

The problem is no one knows how low it'll get. There are some signs to look for like when the market stops plunging and moves sideways. The good thing is the market phases do not usually happen in one day so you'll have time to react.

Market Emotion

So where do you think are we? Probably between "Fear" and "I'm out"?  

The market is very volatile, during this time, investors protect their money by liquidating them (to avoid the effects of further depreciation). People withdraw their investments from mutual funds, uitf, stock market etc. This has an adverse effect on the stock market because it will drive stock prices down, which is currently what's happening, locally and abroad. The net foreign sell (NFS) in our stock market is huge in the past few weeks.

But again, no one knows how low we'll reach. Are we at the lowest point this year? If we are then it's a great opportunity to buy, if we're not then it's time liquidate. We'll see :)

BPI Maxi Saver Account: The Next Best Thing After SDA

[Update May 29. 2013] BPI Maxi Saver decreased its rates. Yield is now lower. See this chart:
25,000 - 299,999 = 1.0%
300,000 - 499,999 = 1.125%
500,000 - 999,999 = 1.250%
1M up = 1.375%

Additional 0.5% bonus if no withdrawal within 1 month.

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If you don't know yet, the minimum amount to open an SDA account in BPI has been raised to 500K. If you're not familiar with BSP's Special Deposit Account (SDA), you may read more here.

Even though SDA is less profitable than Bonds or SDA, it has an advantage over other investment vehicles:

1. It is relatively liquid. SDA may be terminated on a monthly basis if you want to, you just go to your bank and inform them you don't want to enroll your money in SDA.
2. Virtually risk-free, or okay, low risk. It is backed up by Bangko Sentral ng Pilipinas. If it defaults, then our country in general is going down.
3. Higher interest rate than your savings. A bank savings account has an average of 0.5% (exclusive of tax), SDA has ~2+%, even higher than some time deposit account.
4. Compounded. Since it's renewed monthly, your principal + profit is enrolled next so it earns more as months go by.

Alternative to SDA

Now the question is, if you didn't meet 500K worth of savings, where should you put your money?

For this, I find BPI Maxi Saver to be the next best thing, actually in some areas it's even better than SDA.

If you apply through BPI Direct, BPI Maxi Saver needs a minimum of 25K PhP. It doesn't have lock-up / holding period, you can use it like a normal savings account. You'll have an ATM, you can withdraw anytime and you can also terminate your account anytime should you decide to do so.

Interest Rates:
25,000 - 299,999 = 1.250%
300,000 - 499,999 = 1.375%

500,000 - 999,999 = 1.5%
1,000,000 and up = 1.625%

That alone is already way better than your average savings account. But like all infomercials, it doesn't end there! There's more! If you don't withdraw your money within the month, you'll earn a bonus of 1%. The additional 1% is still on a per annum basis.

Interest is credited to your account on a monthly basis, if my understanding is correct, there's also a power of compounding in this case.

Let's try a sample computation. Disclaimer, this may not be accurate yet.

Initial deposit to BPI Maxi Saver account: P100,000

After 1 month without withdrawal: P100,158.33

Computation: P100,000 x 0.0225 / 12 months = 187.5  minus 20% tax = P150.000

2nd month without withdrawal (if compounded): 100,150.00

Computation: P100,150 x 0.0225 / 12 months = 187.781 minus 20% tax = P150.225

Notice that the profit you earn from interest is greater in latter months. This is the power of compound interest. Here, it may not seem that much. Between 1st and 2nd month, the difference is measly 0.225 centavos but that's because the principal is relatively small.

Let's compare it to a savings account with an interest rate of 0.375% that is credited to your account on a quarterly basis, this is usually how a normal savings account goes:

Initial deposit to a savings account: P100,000

After 1st quarter / 3months: 

Computation: P100,000 x 0.00375 / 4 = 93.75 minus 20% tax = P75

That's equivalent to P25 on the first month in a savings account as compared to P150 pesos in a Maxi-Saver account.

There are also other similar accounts offered by other banks such as BDO, but I found BPI to have the best offer as of writing.

I enrolled a Maxi Saver account 3 days ago via BPI Direct but BPI hasn't got back to me yet. I'll update this blog once I learn more about Maxi Saver from personal experience. Happy investing!

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!