I finally get to write and blog again! Thanks to everyone who encouraged me to allot time for this. Thanks also to everyone who sent in emails and questions regarding the drop in the market today. I tried to fit everything into this article and I hope it gives you a picture of what’s happening and what are you suppose to do with your stocks or equity funds.
But before that, just a shout out to all our kababayans in Dubai, Abu Dhabi, and General Santos! It’s been an honor to meet all of you and to teach you how to trade and invest in stocks! Looking forward to be there again soon! Your hunger for learning is pushing me to strive even harder!
After a long weekend, we saw the PSEI drop -487.97 points, this is one of the biggest drops eversince the recent recession in 2008. For those who have been invested in the market for relatively a short period of time this may be one of the biggest drops that they have experienced as the PSEI has been in an enourmous bull run over the past 8 years.
Before I go about where is the market headed, let me add context to where we are now:
-It’s been a good run from 2008 where the PSEI dropped to around 1,800. From where we are now, we have a lot of people who are pretty much still “gaining” from much of the action that has happened in the past 8 years.
-The market dipped last 2013 to 5,800 but after that it has moved straight up to 8,127 in just 2 years. This represents around 44% gain for those who just entered the market 2 years ago.
What do I mean by all of this, there are still a lot of people just waiting for the right time to take profits that even if they sell right now they would still be making money. We have to understand that people are in the market to make profits and that when majority of the market sells, stocks drop.
Next, let’s check what’s happening around the globe that could possibly affect our region.
-Crude Oil (West Texas Intermediate) is collapsing and is now at a new low of 39 USD per barrel. I have heard a lot of analysts say that oil is a leading indicator and stocks follow suite to where oil is going. Majority of the commodity market is also down and heavily in a downtrend.
-China is struggling to get its act together. Just today the Shanghai composite dropped -8.49% and is now down -37.88% since June 2015.
-The US economy is doing better and puhsing forward (this may sound positive) however fears that they may raise interest rates have caused an alarm that money might move away from stocks back to fixed income in the US, should they raise intertest rates.
-The Malaysian Ringgit has dropped to a 17 year low against the US Dollar. A lot of investors are a bit anxious as the Ringgit is now at levels when the Asian Financial Crisis of 1997 emerged and fears that it may happen again are causing people to be more conservative.
These are just some of the factors that have been floating around over the past few weeks. With China being one of the biggest factors that has triggered global uncertainty which has led to the sell off. Low oil prices, though, should be good for our economy as we are not an oil producer however we have to consider that half of the investors in the PSE are foreigners. If they sell and liquidate, there goes our market as well.
Does this global uncertainty change any of our fundamentals?
No, I don’t think so. No, not at the moment.
Looking at it, I do not see anything big that would change the way our fundamentals would run. Of course, the backlog on infrastructure projects and relatively low exports have hampered us for years but at the end of the day we are still a consumption driven economy with lots and lots of dollars thanks to our kababayan OFWs and the BPO sector. Let’s consider that JFC, SMPH, PGOLD, CNPF, etc would all still earn regardless if stock prices would fall because foreigners are just selling us down and it does not change the company’s capacity to rake in more profits. Just to clarify, it would be a different story if prices are falling and something is fundamentally wrong with our country. From where we are right now and the enormous cash (both retail and the BSP) that we have at our disposal, I think our country is poised to still move forward to the greater. (so please vote wisely too)
Fundamentally, is there anything to be concerned about?
We still have a great economy that still poised for the greater, however, we are still expensive. In spite of the huge drop today our P/E ratio is still at 19.23x. This is still quite high and expensive compared to most of our ASEAN peers. Of course, in stocks its not just about buying something that’s good but also buying it at the right price. This just says that our market is still expesnive and is not as attractive compared to other markets.
What does the chart’s say?
I believe that technical analysis is one of the best ways to see where the market is going as it can give us an insight to what investors truly believe the price of the stock should be.
If you look at it closely, you would see that the market has reversed from an uptrend last April 2015 and and has already been in a downtrend for 4 months. A downtrend is charactererized by sellers dominating the market causing it to continue to drop further. As what I always say, a market will be in a downtrend until proven otherwise. What we are seeing today and for the past few days is merely a bearish market moving in a course of direction that it should actually move — downward. During a downtrend, investors should be away from the market and be in cash. Technical indicators for the past days and weeks have also been telling us to either sell or avoid the market as a whole.
When should you buy?
It’s great to buy “cheaper” but not when everyone else is selling. It would be great to buy when selling has subsided and a support has been formed. Buying a stock “cheaper” does not mean it is “cheap.” Jollibee is cheaper than its highs of 232 Pesos per share but in no way is the stock cosidered cheap valuations wise.
Where is the next support?
Given that the market has broken the support at 6,594, we may see the PSEI try to test 6,649 to a low of 6588. Let’s see if the market holds this level first. If it bounces, well and good. If not we may expect the market to drop even lower.
Cash is still King!
I would suggest to be in cash first and buy when we see that the selling has subsided, has formed a support and is trying to reverse upward. At this point, these factors are not present yet and I suggest that we stay in the sidelines first until we see a clear buy signal.
I agree that money is made when everyone is fearful but with charts on our side we can buy when everyone is still fearful but we come in when those that are fearful have stopped selling.
What If I still have stocks?
This is where you go back to your trading/investing plan. I always tell my private clients that before they buy a stock they should already have an idea where they want to sell it. Either up or down they should have an exit strategy. That is what I am suggesting to you. Revisit your stocks and check which are the parameters that are causing you to buy and sell your stocks. If you follow Peso Cost Averaging, none of this market movement should bother you as you have a fixed buying and selling scheme on a regular basis. This is under the notion that you are buying a company with great and growing fundamentals.
Please don’t let the stock market allow you to lose your sleep and your joy. If you are anxious and a bit scared, it may mean that you are exposing a bigger part of your portfolio than what you can tolerate. If that’s the case, try to shift and move some first to fixed assets until the amount you have exposed is something that you can confidently trade and invest in. Just an encouragement, the stock market is just one channel of blessing but God is still our source. He can bless us, front, right & center and open up other channels of blessing for us.
I just dream of a bigger and brigther Philippines. The reason why I love what I do is that I really want to see more Filipinos financially free and invest the right way. I believe if we have more investors earning the right way more people will actually beleive that it can be done and that financial freedom is not just by how much money you make but by what you do with. I really believe that our greatest days are yet to come and that all of us together can make a difference to make our country a better place. God bless you all and I hope this helps you in your investing.
September 5: Manila – Stock Smarts Basics and Fundamental Analysis
September 12: Manila – Portfolio Management
September 17-23: Doha, Qatar – Tactical Technicals and Stock Market Boot Camp
October 31: Kuala Lumpur -Stock Smarts Basics, Technicals and Portfolio Management
November 7-8: Thailand -Stock Smarts Basics, Technicals and Fundamentals
*Chart from ChartNexus
*Photo from Google Search