During my weekly stock market analysis on ANC, I was asked of any potential warning signs we might look for stock prices on the Philippine Stock Exchange (PSE).
Good Grief. After all these years of stumbling economy and a stock market that is hazardous to your wealth, the last thing I want to think about is a potential negative scenario.
But in the hopes that someday I might get paid the big money for my so-called brilliant analysis, I suppose I need to at least check the red flashing lights and wailing sirens just in case. So here goes.
Number one rule in forecasting the stock market is that "volume precedes price." That is, large volume is more important than large price movement. If small price increases are propelled by large amounts of volume, then the likelihood is that prices are going much higher. In the current stock market, I would begin being cautious if I saw small downward price movement on large amounts of volume.
If the market will not maintain its rising momentum, it could happen this way.
We get a week or two of rising prices, maybe taking the PSEi index 100 points higher but on diminishing volume. That would be the first indication that things are not as well as they appear. Next, would come a week of small downward movement but on greater volume than the most recent rise. From this point, it would probably be that prices would start down on greater volume and we could lose the momentum of the rally we experienced in 2006.
Over the next six weeks, I do not want to hear any bad news from our major corporations. The sale of the water concession to DMCI and the sale of Coca-Cola Philippines by San Miguel better go through smoothly. The sale of the PLDT shares should not create any more controversy. ShoeMart better not tell us that Christmas sales were dismal and it would even be better if the Christmas crowds were spending heavily.
Corporate earnings for the fourth quarter of 2006 ought to maintain the brisk growth of the rest of 2006. Last quarter should have been favorable. The latest inflation figures are great, if not surprising. A strengthened peso stabilized the prices of goods with a large imported component. World crude oil prices dropped significantly, if quietly, in the last quarter. Our listed companies should have been able to turn some handsome profits in the last three months and I will be very annoyed if they did not. So do the stock market.
So what about the externals that might cause the red lights to go on?
I am not worried about the Philippine government making any really foolish moves, financially speaking, before the May election. As long as public money spent for the election builds a few bridges, buildings or buys some lechon baboy, we are in good shape. If the election spending winds up in too many Hong Kong bank accounts, well, that is another story. The administration has endured all these years and should consolidate its gains rather than try to expand its influence particularly in the Senate. In fact, a stronger opposition would actually be in the administration's best interest. Case in point: the minimum-wage law.
The economy cannot sustain the large increase in the minimum wage and still try to keep people in their jobs. This is a political nightmare for the administration. Pass this increase; the economy will crack. Go against the increase and the administration will be hurt in May. Other examples will come up through 2007. Better for the administration to let an opposition Senate take the heat.
One nonstock market external that I am worried about is the appreciation of the peso. If the peso continues to advance say to the 46 area, I think the market will suffer. The best thing that could happen is a brief move back to the 50 level. At that point, even more foreign money would rush into the market to take advantage of a weaker peso.
At this point, there are very few reasons not to invest on the Philippine Stock Exchange. Sure, there are risks as with any business venture. However, the risks are very manageable and will not come suddenly given the environment we are seeing. Certainly, that could change. Right now though, the odds are well in your favor.
E-mail comments to mangun@email.com.
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