[ANALYSIS] Breaking barriers: Is it for real? 

Daily trading results are swinging in a flux from positive gains to negative losses and vice versa as a result of sell-off activities that have served to be a threatening factor against the market’s entry into bulls’ territory since over two weeks ago.  

As of Wednesday, the market extended its decline by 112.73 points or 1.5% to 7,424.52, which is only several points above the current bull market’s origin.  

There were two factors that greatly weighed on the market’s performance. Total value turnover for the day was tepid at P5.30 billion. This is almost as low as the market’s year-to-date average of P5.22 billion. Foreign investors also turned to be net sellers for the day, breaking the market’s 27-day net foreign buying record.  

Foreign investors’ trading activities for the day, however, amounted to 39.91% only of total market transactions. This is significant because the market’s decline for the day may have been a result of the normal sell-off that is not mainly driven by profit-taking. It could just be a part of the market’s technical dynamics to determine whether its breakout into bulls’ territory is for real for not. 

While cautious, my colleagues in the industry seem to still share the same sentiments they have about the market’s advance and overall direction, withstanding the lingering sell-offs.  

Andro Leo I. Beltran, vice president of First Metro Securities of the Metrobank Group, has maintained his excitement.  

First of all, while he and his company are afraid that profit-taking will continue to persist at the 7,500 level and hamper the market’s further advance, the market can still hit 8,000 as “there is enough time for a Santa Claus rally.”  

Furthermore, Beltran and his stockbrokerage firm are clearly seeing signs of economic recovery that “suggest a cyclical upswing next year.” Needless to say, key indicators are looking good. He cites that “inflation is under control, money supply is growing, imports are up, and retail sales are bouncing back.” 

“Plus, recent interest rate cuts from the Bangko Sentral ng Pilipinas (BSP) and the Federal Reserve are really supporting market valuations,” he added. 

At their end, too, Beltran says that their “stock picks will hinge on four main themes,” the first of which will be the stocks that will positively react to lower interest rates and expected lowering of the reserve requirement ration (RRR) for banks.  Examples of these will be “bond yield-sensitive stocks, like REITs [real estate investment trusts] and positions in banks like BDO, BPI, and MBT.” Needless to say, these banks have high dividend yields.  

Considering rising consumption, the retailing business is in their radar. Their next stock picks will be “companies like PGOLD [Puregold], RRHI [Robinsons Retail Holdings Inc.], and SM.” They are expected to show strong earnings in the next couple of years as grocery shopping continues to thrive,” according to him.

Third in their crosshair will be property companies. He said that “over the next 3 to 5 years, we’ll see growth from the Luzon Economic Corridor, and companies like ALI [Ayala Land Inc.] and RLC [Robinsons Land Corp.], with ties to this development, are set to benefit significantly.”

Fourth and last will be the “large-cap and cyclical stock.” According to Beltran, these companies “like SMPH [SM Prime Holdings], JFC [Jollibee Foods Corp.], along with the banks and retailers already mentioned earlier” are expected to lead this market’s early cycle run.  

What will also provide additional latitude to your stock selection under this theme will be the interesting market plays the holding firms or conglomerates will offer.

Market strategist and chief trader of H.E. Bennett Securities Inc., Joel de la Peña, on the other hand, has become more upbeat. The market’s advance is no longer “the usual last quarter rally” as he said before but is now due to the increase in investors’ risk-appetite, especially that “another jumbo rate cut on October 15” by the BSP is expected.  

De la Peña also believes the market could easily hit 8,000, driven by expected bigger market volume and value turnover out of the reduction of the “Reserve Requirement Ratio” (RRR) for banks on October 25.

As explained, “the Reserve Requirement Ratio or RRR is a key regulatory tool used by central banks to control the amount of funds that financial institutions, such as commercial banks, must hold in reserve against their deposit liabilities.”

President and chief trader of Eagle Equities Inc., Joey Roxas, sounded more optimistic also this time as he likewise seemed to have shrugged off his strong aversion for the month of October. More than that, the current bull run now appears sustainable. 

One of his telltale signs is the continued buy-back activities of foreign investors, which started to visibly grow since June. Foreign investors were net sellers in the market during the last administration. They were dumping the Philippines in the last six years.   

However, as foreign investors have turned to be net buyers, Roxas now believes the market’s advance is even “sustainable.” 

Roxas also noted that the market’s positive reaction to low interest rates together with improving “favorable valuations” have driven foreign interest in the country as well.

Jofer Gaite, president and chief trader of Westlink Global Equities Inc., also believes that the market’s breakout is broad-based, as it is “led by heavy weights like AC [Ayala Corp.], ICT [International Cargo Terminals], SM and BDO.” 

Gaite went further to say that the “foreign flows [will largely] rotate into the property and consumer or retail industry sectors,” at the same time forewarning that “the laggards [will] begin to catch up,” as well, and obscure the market’s play. 

Like the rest of our colleagues, he believes that “the further easing of interest rates and the economy’s slowing inflation rate” will bring the market at the 8,000 to 8,200 levels — ergo, the market’s present advance is for real.

Final thoughts

In market breakouts, sell-offs occur as a natural consequence. However, they do not happen solely as the result of profit-taking activities but from the concerted effort of market participants to deliberately test the character of the market’s breakout as to whether it’s real or not.  

Fundamentally, this can be seen from the general direction of overall prices and by the magnitude of the market’s value turnover. The standard observed in the case for a real breakout is that value turnover continues to stay strong even when prices continue to go up. In our present case, value turnover is getting bigger while market prices are getting higher.

The obvious motive behind it is to help them plan out their next trading move, which is to either start picking more position and go for the big time or to lighten up to protect capital.  

In any event, whatever has been said about the market’s prospects, a good forecast is still a plain forecast. It may or may not happen. And that while the obvious trading strategy now is to “let your profits run,” remember the trading adage that any point in the market can be a turning point. When this happens, always adhere to an exit plan geared to protect capital. – Rappler.com

(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.   You may reach the writer at [email protected])