Incipient Signs

I haven’t seen this level for a very long time: The Phisix hit 3,244 this morning on hefty volumes valued at around PhP6.2 billion (the daily average recently has been PhP2-3bn). I mentioned before that should the index reach 3,000, the market would likely enter a bull run. The trend is quite clear: high buying volumes consistently for the past year have pushed the market upwards to levels last seen only in the early 1990s.

With the current low interest rate environment (3-4% 90-day T-bills, the lowest in recent memory) and a strong peso (US$/PhP48.84) as well as a strong balance of payments (BOP) surplus position (US$3.8 billion), equities currently benefit from the shifting allegiance of large funds away from government bonds such as Treasury bills.

Good economic fundamentals (NEDA estimates 5.3%-5.6% GDP growth for 2006) point to a better year ahead for corporates. Low interest rates means lower borrowing costs for companies; low inflation also translates to lower production costs; while a strong peso benefits manufacturing companies with higher import production component. Listed companies will likely generate better margins this year.

Caveats: I would restrict my investment horizon to a short-term basis-- from hereon until just before the elections-- for two (2) reasons: (1) Election spending is very inflationary. Money supply has already expanded by 18% last year, exceeding the monetary authorities’ target of only 12%. Elections could aggravate that, putting pressure on interest rates to rise; (2) conduct of the elections. No major disruptions such as coups, a military take-over or another people power, please, since these would only serve to undermine the country’s financial gains. A wrong move and foreign investors, who dominate the market, may easily move out in droves as well, pushing the market back into the dustbin.

I’m pretty sure at some point the Bangko Sentral (BSP) will have to raise the interest rates perhaps after the elections, to mop up excess liquidity.

In addition, I hope Gloria vetoes the wage bill, or at least make it realistic. Drastic increases in wages which cannot be realistically matched by equally drastic increases in the country’s gross output will only result in higher inflation. It is so obvious I do not understand how this bill could have passed the scrutiny of Congress.

Why listen to communist relics in Congress, like Casiño and Beltran, self-styled Che Guevaras and die-hard proponents of a bankrupt ideology, who know zilch, nada, zero about economics and who probably think this country should emulate Cuba or North Korea?