FEBRUARY 13, 2010 (STAR) By Zinnia B. Dela Peña  - The local stock market is set to take investors on a topsy-turvy ride this year but the country’s strong fundamentals and an improving global economy will give the bulls ammunition to take the indices to higher ground, according to Philequity Fund Management Inc. and Wealth Securities.

In a joint investors’ forum held by Philequity and Wealth Securities late Thursday afternoon, Jerome R. Gonzalez, head of research at leading mutual fund firm Philequity, said the market still maintains a bullish tone in spite of the ravaging falls over the past two weeks that scared many people away from equities.

Volatility kicked into high gear in February with the main composite index shedding as much as 12 percent from a high of 3,133.53 registered last Jan. 15. Local shares were weighed down by concerns about Greece’s financial problems and the risk of debt contagion spreading through the euro-zone and to the US.

Gonzalez said 2010 will be a more volatile year than 2009 with January marking the start of a longer and deeper correction. “We view this sell-off as a normal pullback (probably not yet over) within a cyclical bull market,” Gonzalez said, pointing out that the PSEi could end the year at 3,300, a modest 10 percent return for a market that gained 63 percent in 2009. The index could easily hit the projected level assuming elections will be successful and peaceful and that no financial contagion takes place.

The main composite index closed at 2,949.65 Friday, up 40.77 points or 1.4 percent on news that European Union leaders will help Greece address its huge deficit. Greece shocked the investing community last month when it announced that its budget deficit for 2009 reached 12.7 percent of GDP. Under the Maastricht Treaty, they are supposed to keep it at a maximum of three percent.

Greece also now has a debt stock of 254 billion euros. That’s a debt-to-GDP ratio of 100 percent, well above the limit of the treaty, which is 60 percent.

Wealth Holdings chairman and president Wilson Sy, a maverick stockbroker and former chairman of the Philippine Stock Exchange, acknowledged that the intermediate term is going to be choppy and challenging to the average investor but urged the investing public to ride out the volatility. “The key is to keep your balance and keep your eyes on what you think is going to happen over the long-term,“ Sy said.

The view is echoed by Philequity’s Ignacio B. Gimenez who says that although local stocks are in for a bumpy ride, most people should not consider selling or yanking out their money from mutual funds. He advised investors to spot exciting investment opportunities in a bearish market. “When prices go down, there are greater opportunities for more investment at a lower price. Investors should stick with quality investments whatever the market is doing,” Gimenez said.

Gonzalez said investing in falling markets is an ideal way of taking full advantage of the downturn because of the effects of averaging out the cost of investment. For investors who may want to remain exposed to equities but want protection from potential falls in the future, Wealth Securities’ Bernard Avinante suggests that they go for a defensive portfolio by snapping up stocks that are likely to withstand market volatility such as telecommunications, utility and consumer-related companies.

Among Wealth Securities’ top picks are telecommunications conglomerate Philippine Long Distance Telephone Co., SM Investments Corp. (the flagship holding firm of retail tycoon Henry Sy, Ty-owned banking giant Metrobank, Energy Development Corp. ( a leading renewable power generating company owned by the Lopez family, Robinsons Land Corp. (the property arm of Gokongwei conglomerate JG Summit Holduings Inc.), Universal Robina Corp., and SM Development Corp. Avinante said PLDT, the leading mobile phone provider in the country with a 54-percent market share, is a relative outperformer in an uncertain market, providing attractive dividend yields of 10 percent. For this year, the telco’s earnings are forecast to grow by 16.6 percent. He said the stock could hit P2,800.

He said SMDC is touted to become the next big player in the real estate industry with its net income seen matching those of property giant Ayala Land Inc. by 2013. While it was a late entrant in the sector, SMDC’s business formula of offering units under the P2.5 million cap has become an instant hit among condominium buyers.

Gonzalez said investors who are overweight should use rallies to lighten up on positions. For those who don’t have any equity position at all, this correction is an opportunity to dabble in the stockmarket or park their money in a mutual fund like Philequity.

Gimenez said a P1 investment made in Philequity in 1994 is now worth P12.40 (equivalent to a compounded annual return of 18 percent). Organized in 1994, Philequity gained 65 percent last year, the highest yield recorded among other mutual funds.

Investing in a mutual fund gives someone the ability to earn high rates of return by investing in a diversified portfolio of stocks and bonds that are carefully chosen and monitored by professional fund managers.

The rising debt buildup has also become a concern especially with the possibility that the US Fed may start raising interest rates.

Last year, the Philippines had a budget deficit of P293.2 billion, 17 percent above target and equivalent to 3.7 percent of GDP.

Gonzalez said that with the economy expected to post some modest recovery this year, the government should already put a rein on the deficit.

Similar to the situation in the US, the country’s debt problem is worsening and revenue collections have been disappointing. Given this, Gonzalez said the next president should have a clear direction on how to address this issue.

Gonzalez said now is a good time to review the lessons of 2007 so as not to repeat them. “Dubai’s financial woes reminds us that things may happen unexpectedly.The greatest danger is contagion to other countries whose fundamentals are weak, such as Greece, Latvia,etc…” Gonzalez said.

Another factor that could affect market sentiment is the expected rise in food and utility prices which should push the country’s inflation higher in the second and third quarters of the year, ranging from 3.5 percent to only 5.5 percent.

Gonzalez said the surging US dollar also caused commodities to pull back substantially. Light sweet crude oil has already fallen 14.4 percent from a high of 83.95 on Jan. 11. Gold has dropped 13.1 percent and copper has plunged 18.9 percent from their respective highs.

A ride on an upside-down, topsy-turvy roller coaster is pretty risky, but the resulting excitement takes your breath away.

Economists see 2010 inflation hitting 4.8% By Lawrence Agcaoili (The Philippine Star) Updated February 15, 2010 12:00 AM

MANILA, Philippines - Private sector economists see inflation accelerating to 4.8 percent this year from 3.2 percent as the sustained rally in global commodity prices would continue to exert inflationary pressures.

A survey conducted by the Bangko Sentral ng Pilipinas (BSP) among private sector economists and analysts for December showed inflation would be within the target of between 3.5 percent and 5.5 percent set by the central bank this year as well as three percent and five percent for 2011.

The survey of non-government analysts and economists showed that the mean inflation forecast was 4.8 percent for this year and 4.7 percent for next year.

“The BSP’s survey of private economists expects inflation to remain within the target ranges for 2010 and 2011,” said BSP’s Antonio Centura of the Department of Economic Research.

Centura said analysts expect the rally in global commodity prices to exert inflationary pressures.

He also cited unfavorable base effects from low inflation numbers in the previous year would register higher inflation readings in 2010.

Think-tank IDEA sees inflation hitting 6.8 percent followed by Rizal Commercial Banking Corp. with a range of 4.7 percent to 5.6 percent, Royal Bank of Scotland with 5.4 percent, HSBC with 5.1 percent as well as Philippine Equity Partners Inc. and Bank of America-Merrill Lynch with 4.9 percent.

The survey showed that ING Bank and the Metrobank Group see inflation averaging 4.8 percent this year followed by with 4.6 percent, ATR KimEng Securities with 4.5 percent, Banco de Oro with 3.5 percent, and Standard Chartered Bank with 3.3 percent.

“Based on the probability distribution provided by nine respondents, there is a 33 percent chance that average inflation for 2010 could be within 4.1 percent to five percent,” the BSP survey stated.

The BSP said its survey indicated an average forecast inflation rate of 4.3 percent in the first quarter of the year and 4.8 percent in the second quarter of the year.

Centura said economists believed that the continued strengthening of the peso against the US dollar as well as the moderate demand conditions would dampen inflationary pressures.

BSP Deputy Governor Diwa Guinigundo sees inflation kicking up to five percent in the second and third quarters because of the base effect.

Chief News Editor: Sol Jose Vanzi

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