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Disclaimer: Views do not reflect those of the blogger’s employer. Also, the analysis made on this blog entry were formed as a result of the blogger’s research and communication with his colleagues and various industry practitioners. Though the blog entry serves as a mosaic of the blogger’s efforts, most of the credit goes to those who took part in the exchange of ideas.

To the few followers of my blog, my sincerest apologies for not being able to sustain blogging. I have been busy with work and some other extra-curricular activities.

Last July, I was given a bigger allocation to trade for an equity portfolio. I was excited to trade because being given an allocation connotes trust. Lo and behold, the market betrayed me, thanks to the smurfs! Haha.

At the time that I started trading the increased allocation, the market dropped significantly, as shown by the chart below.

My proprietary portfolio’s simple return stood at -2%.

It’s been difficult trying to improve my marked-t0-market returns, as uncertainties in the fiscal position of Greece and other PIIGS countries remain in danger. What even made it a bit troublesome on my part are the following:

1. Last Tuesday during the joint gathering of various association of investment professionals, BSP Governor Amando Tetangco presented the central bank’s responses to mitigate the adverse impact of the developments in the US and Euro Area. In his presentation, though he made it clear that the Philippines was able to build some isolation amidst global market surprises, he made a statement that the Philippines is still coupled with the US cyclically due to strong financial, investment and trade linkages. I remember that his strongest basis for this is the historical trend of interest rates. Also, he named five channels that have served as buffer for the Philippine economy vis-a-vis external risks: trade, remittances, investments, BPOs, and financial markets. The BSP governor easily identified the following risks to all these channels. He emphasized that the US and Europe represented 30% of Philippine exports and 57% of OFW remittances. He also mentioned that 75% and 7% BPO receipts of the Philippines came from US and Europe, respectively.
2. Asian Development Bank also came up with its revised GDP forecasts, which translated to lower 2011 GDP numbers in most economies that they cover, including the Philippines. While ADB made it clear that the economy will still be steadfast because of positive business sentiment, high manufacturing capacity utilization (above 80%), and solid domestic demand, they made some qualifications on their economic optimism: a) that the government follows through on this plan and on reforms of the past year and that the PPP will kick-in and follow its forecast period, and b) the uncertainty about the global economy raises risks on their forecasts. Personally, I don’t feel the current administration actively addressing the global uncertainties in order to shield our country.

Funny that after the BSP Governor gave his speech, yields of the Philippine treasuries went up significantly for two days.

At the start of the year, everyone was looking at the Philippine Stock Exchange index reaching 5,000 by the end of 2011. With these developments, I do not know anymore. Lucky we even reach 4,400.

Looking at the charts below, in a situation of economic uncertainty, the major indices tend to be mirrored by the PSEi.

 

No one really knows what will happen with the fiscal situation of Greece, but in my opinion, it is really just a matter of policymakers devising the best sugarcoating of the situation.

However, looking at the US in isolation, assuming you view the glass half-full and you trust how the leading indicator is computed, perhaps there can be an improvement. Shown below is a parallel chart of the YOY change in the US leading indicators and the US GDP YOY (credit goes to my colleague).

If we assume that the leading indicators are accurate “advanced diagnostics” of the US economy, perhaps the US GDP situation will improve. However, the leading indicators for the month of August have not been published. Heck, even most of the components of the leading indicators at this point are outdated at least for more than a month. Also, it is hard to believe if the Dow Jones is significantly influenced by the leading indicators. My colleague and I have not a way of translating the daily index level of Dow into a meaningful comparable data relative to the Leading indicators. Lastly, even if the US economy improves just a little bit, we still have to review the economic situation in the Euro Zone.

My 2 cents: the securities markets will still remain uncertain. It seems that we need clearer signs at this point. For my proprietary equity portfolio, it seems that I only have no choice but to limit my exposure on stocks that have trading bands or trading upside, but I have to blend it with low beta stocks. I’ll try to work on some stock picks in the coming days.

 

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