Phisix Confirms Peso's Advance!

Today’s superb rally in the Phisix came about as forecasted in my latest outlook, which was principally anchored on the premise that the domestic stockmarket would eventually confirm the Peso’s dramatic rise. As of this writing the Peso was quoted last at 54.74 according to Bloomberg while the Phisix climbed a splendid 46.9 points or 2.39% on the backdrop of Php 1.204 billion turnover. The Phisix is the best performer among Asian bourses today!

Foreign money again was responsible for today’s torrid buying. Capital inflows from overseas investors recorded a net inflow of P 231.813 million with foreign activities accounting for 58.7% of the cumulative trades. Market breadth was essentially bullish with 63 advancers against 14 decliners while 34 issues remained unchanged. In all 111 issues had been traded, which is below the 120 threshold, a statistic I use to measure local sentiment. This suggests that the locals remained net sellers in today’s activities, still skeptical of the day’s positive developments.

Because foreign money were the pillars of today’s ascent, the heavy market caps performed with gusto. Imagine BPI was in the list of top gainers usually occupied by second or third stringers. By jumping 8.65% to 56.5 one of the country’s leading banks landed on the 5^th spot. Other heavy caps performed well except for ALI and SMCB which posted declines.

Naturally various reasons would be floated as to why the Phisix rose remarkably. Most of which will be centered on current events, particularly the implementation of the EVAT. While EVAT for me is essential for the country’s fiscal health, its influence in today’s buoyant trading could be minimal. Instead, the planned reforms to be instituted by the Philippine Stock Exchange could have had a positive impact on foreign funds. In April according to the disclosure, the Phisix will shift from a market based capitalization to free float based. This means that component issues will be selected by the measure of liquidity or tradability. I think that this is an important development because liquidity is an essential consideration in the investment choices of foreign fund managers.

In addition there would be some changes in the component roster comprising the major Philippine benchmark starting December 1. Ginebra San Miguel, Ionics, Philippine National Bank, Music Corporation and JG Summit will be replaced by Banco De Oro, Manila Water, SM Investments, Pilipino Telephone and Philex Mining.

The latest round of foreign led buying resembles the sharp rise of the Phisix last June 2003 or during the onset of the cyclical advance phase. I also think we are in a late in the cycle rally, where the country lagged behind the region’s earlier advances due to political obstacles and is bound to a catch up phase.

If I am right about the Peso and the Phisix, then this is the initial upside leg which could last until the first quarter depending on the intertwined performance of the US and Asian bourses. There are many opportunities still out there.