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.

Investing in Dollars

I'm just going to share what I did this January: As the stock and bond market are going sideways, I bought Dollars and put it in BDO Dollar money market fund. I do not encourage just following what I did, please do your research too until you are convinced with the risk you are taking.

Why did I invest in USD?
I am betting that the U.S. Dollar will appreciate in the next 2-3 years.

How can I say that the Dollar will appreciate?
- U.S. economy is starting to pick-up.
- Hot money in the Philippines is flowing out.
- BSP's low interest rate is not attractive to foreign investors.
- U.S. Gov't starts tapering its Quantitative Easing policy which means less USD will flow to emerging markets.

The above reasons do not guarantee that the Peso will continue to depreciate. There are many factors affecting forex and many strategies that BSP can employ to reverse the process of Peso depreciation; one of which is increasing the interest rate, in which in my opinion it will happen soon, probably this year. There's already a pressure to increase the interest rate because a lot of $ is flowing out of the country in the recent months.

I bought the Dollar then placed it in BDO's Dollar money market fund. Money market is a low risk type of fund thus the return is minimal, earning around ~1.5% in one year. Still, this is better than just putting it in a savings deposit.

Even if my bet is wrong, I'll just treat it as part of my savings. Unlike stocks, betting in a foreign currency is usually not as volatile.

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.

My stock picks this September 2013 [Philippines]

CPG (Century Properties) if below P1.40 since it's still undervalued (7+ P/E), even below P1.50 I'd still consider it value-investing. This remains my "Warren Buffet Stock". Hold for 1-2 years unless there's a crisis.

In the property sector BEL (Belle Corp.) may also be worth mentioning as their profit may jump. They should already be earning from the lease of Melco's casino and they'll probably earn more when the casino starts operating. 

COSCO  if below P10. This is a medium risk stock since it's relatively new but with the management and the direction they are heading, I believe it will be a great holding company one day; in the likes of SM if done right. But there's a long way to go. 

OV (Philodrill) - Placing a relatively small allotment. Higher risk since oil explorations can go either way, however, their direction in reaching 2B profit in 2-3 years time may be in place since they already started drilling in Galoc field to double production. 2B net profit means a P/E of 4+ at  the current price of P0.039.

AP (Aboitiz Power) - below P35. I bet on power generation in the next 3-5 years especially that Mindanao is under-supplied. AP also gives good cash dividends (4-5%), so I'll just continue to invest in it on a quarterly basis as an alternative to bonds. I'm okay with the price not moving too much because of the cash div.

[Update 9/19/2013] Please disregard my AP recommendation. I might have missed something here. Seems Aboitiz Power has big foreign debt which means they are very vulnerable to Peso depreciation which is happening now and might probably continue to happen (calculated guess) in the long term. Aside from this however, AP is a good company, but their vulnerability to forex changes (as well as other companies with big $ debt) means their profits will be very volatile.

Note the above is under the assumption that there are no crisis. Global stock market is unstable due to US, China, India/Asia. Watch out for international news that can affect our market, like US Fed tapering. And as always, the sell strategy is not disclosed here because it depends on your personality and risk appetite. So plan a good sell strategy so you won't get left behind.

Good luck and happy investing!

Reminder: GTCAP and LTG will replace MER and BEL in PSEi on Sept 16

After On September 16 trading day, GT Capital Holdings, Inc. (GTCAP) and Lucio Tan Group, Inc. (LTG) will join the list of Blue Chips in the Philippines or the top 30 companies that composes the Philippine Stock Exchange Index (PSEi).

In a statement by Phil. Stock Exchange president Hans Sicat, he said that this is a result of a regular assessment of the main index to reflect the current market of the Philippines.

Manila Electric Company (MER) and Belle Company (BEL) will be kicked out (harsh term) of the index so you may expect a bit of temporary selling pressure; it's possible that it may be overly done in which case, it's a possible opportunity buy because even if they were removed from the index, their business and management remain the same.

In my personal opinion, I don't get why newly created corporations such as LTG and BLOOM got "indexed". Yes, they seem reputable, but shouldn't PSE give them the chance to prove themselves first and create a good track record? I mean compared to Jollibee Foods Corporation which has been here since the 70's, LTG and BLOOM are babies. Anyway, they seem to be well-managed so most likely their businesses will do good; plus they are right on the spot in terms of liquidity, market capitalization, and free float level (criteria of being in the Philippine Stock Market Index).

Mark the date: September 16, 2013. Happy trading!

$SUN shareprice skyrockets! [Why? A Newbie Guide]

In my previous post, there is a speculation about the strategy of AGI companies, specifically, when Suntrust Home Developers (SUN) was left as a shell company, theoretically for a greater purpose. These speculations have come to life, and are continuing to do so when SUN has just announced that it's allowing existing shareholders to subscribe to 2.5x more  shares.

If you are a shell company, a company without asset, why would you want your shareholders to subscribe more? It means the owner is eyeing for a profitable venture and a backdoor is in place. Backdoor is a way for non-listed companies to be listed in the Philippine Stock Exchange. This is done because listing from scratch or Initial Public Offering (IPO) is quite expensive to do compared to just acquiring a shell company that is already listed in the exchange.

Before the disclosure was announced, SUN was trading around 0.57-0.60. No one knew then when a backdoor will be in place, or if it will ever occur, so the share price of SUN went down. When the disclosure was announced that additional shares will cost P1.00 each, that's the signal that a backdoor will occur soon! SUN's share price skyrocketed.. immediately you will think that a SUN's stock price will be valued at least P1.00 so those who bought below P1.00 were fortunate. SUN's share price reached ceiling price immediately. The next day it also reached ceiling, and today it's still up but no one knows for sure how high it will go.

The disclosure states that only existing shareholders can buy additional 2.5 shares. This means if you own 10,000 SUN shares, you can buy 25,000 more shares at P1.00 on SRO. The fact only existing shareholders can buy more shares adds to the buying pressure, that's why SUN's price is going beyond P1.00. There's an increased demand to have shares of the company (EVEN IF WE DON'T KNOW WHAT ANDREW TAN IS PLANNING). We're just trading in good faith that Andrew Tan won't let us down, that it might be Emperador that will backdoor SUN. Some are just trading for the play of instant money, well I think most are.

I don't know how high SUN will go up. Today, it's kinda shaky: it's reaching ceiling but sometimes the price goes down also. If big players are playing SUN, or maybe there's just a big demand for it, then it can still go up beyond P1.90 (Today's ceiling is P1.90).

So who will the backdoor company be? My gut tells me it's Emperador. The SUN is up and everyone seems happy, but for how long? When SRO has an Ex-Date, the share price will probably go down the day before ex-date, similar to dividends' ex-date case.