Staying ahead of the curve in 2014

Market summary

IF YOU are complaining that the holidays observed this December are not yet enough for you to celebrate the season and have fun, listen to this colleague of mine complain about the long breaks during the month.

Because of these breaks, he says, we have wasted a lot of market time and missed out on many trading opportunities.

“We have too much vacations,” he says. “Imagine, we just had three trading days during the last week of trading this year which ended on Dec. 27. And, believe it or not, we will have only two days of trading in the week when we resume and open forwork on Jan. 2, Thursday.”

This may sound odd to those not acquainted with life in the stock market. But that’s how it is for those who make a living, including those focused on pursuing financial freedom, in the stock market.

Equity markets around the world have different trading hours. However, they are connected in some ways that the impact of some—positive or negative—developments in other markets on the local market are lost when there is no local trading when these developments happen.

This may explain why my colleague is concerned about the missing trading days this December. The Wall Street and other regional markets were open and making further rally. Since we’re already closed for the year, we lost their positive impact that might have further improved our yearend closing performance.

Last Friday, our local market closed and settled for the year at 5,889.83. This showed our market ending at almost the same level as when it started the year at 5,812.73.

To be precise, the market made a net gain of only 77.1 points or 1.33 percent for the year. This translates to an equivalent annual rate of return for investors, too.

This was totally disappointing, according to a friend. His e-mail stated, “(this makes) Philippine stocks . . . from the world’s best performers into the biggest losers . . . (thiswon’t) lure back Macquarie Investment Management Ltd. and Bank Julius Baer & Co.”

Looking back, the market made a tremendous advance of 1,590.42 points or 27.31 percent in less than fivemonths when it peaked in May. It fell to a bottom later in June, losing as much as 1,614.59 points or 21.8 percent.

It made a recovery in July with a gain of 1,011.05 points or 17.46 percent, but only to fall again in August, posting a loss of 1,062.05 points or 15.62 percent.

Again, the market picked up and peaked in October with a net gain of 897.05 points or 15.63 percent. But then, again, the market fell in November.

This went on in December. The market suffered a net loss of 193.88 points or 3.12 percent on the first week, and continued to drop with another loss of 247.78 points or 4.12 percent on the second week, making a cumulative loss of 441.66 points or 7.24 percent in just twoweeks.

The market climbed back with a gain of 68.00 points or 1.18 percent on the third week, followed by another gain of 54.70 points or 0.94 percent on the fourthweek.

However, these gains made in the last two weeks of December still left the market with a net loss of 318.99 points or 5.14 percent, confirming a downtrend and overallweakness.

This was further illustrated in last Friday’s trading session: The market was unable to climb higher than 20.25 points at 5,911.89 after opening at 5,891.94, which was only 13.62 points or 0.23 percent higher than the previous day’s close. Weak as it was, the market closed at the session low of 5,889.83.

Next year’s general forecast

Like in the forecast for the US economy, the local economy is seen to stay strong. Despite the armed hostilities and calamities suffered in the southern part of the country, from Zamboanga in Mindanao to Central Visayas, growth for 2014 is still placed at 6.8 percent. To quote some observations, “this will make the Philippines remain one of emerging Asia’s fastest-growing economies.”

Economic expansion is anticipated to start slow in the beginning of the year. It should accelerate in the second quarter when rebuilding efforts in the typhoon-stricken areas go into full gear.

Remittances from overseas workers are seen to also continue climbing in 2014. Along with a robust demand, improvement in exports and policy reforms that should drive up productive activities in the other sectors of the economy, the country is expected to outpace most neighboring economies, again.

Its estimated rate of growth is expected to remain second to China’s, which is expected to log a growth rate of 7.4 percent for 2014 and 7.2 percent for 2015. Reconstruction efforts were expected to contribute about 12 percent to the 2014 GDP.

Bottom line spin

Not going through further details on the economic forecasts, the long and short of their storyline seems to say that growth and expansion—sans the optimistic semantics—will stay quite flat in the next two years.

Be that as it may, this would not mean that the stock market would become an unattractive place for your money. Interest rates are not expected to go up any higher soon, as the US—the acknowledged trend setter on this matter at the moment—is not about to allow it to happen soon, too.

In any case, some stocks will definitely continue to outperform. We have Universal Robina Corporation (URC) as an example.

As most stocks followed the price curve of the PSEi, it bucked the trend. It has a 52-week price low of P82.00 per share and a high of the same time frame of P135.40 a piece.

With its closing price of P113.10 last Friday, it was still be up by as much as 37.93 percent from its low with a probable upside of no less than 16.5 percent.

To spot stocks that can outperform despite the anticipated market scenario, this can be accomplished by the most successful money managers I’ve written about. This is called in market parlance the “Bottom-Up Method” of investing.

As defined, themethod simply “deemphasizes the significance of economic data and market cycles.” This is because individual companies, according to market observers, “can do well even in an industry that is not performing very well.” (Let’s discuss this subject at length next time.)

Call for fairness and transparency

A bidder for the single-ticketing system for the LRT-MRT, E-Trans Solutions Joint Venture Inc. (E-Trans) is questioning the Department of Transportation and Communications’ manner of handling the proposed project. It claims that it favors the usual business heavyweights. This is manifested by the agency’s early announcement that “the department will consider only the bids of the SMand AF Consortia.”

PSE edge

Starting Dec. 27, the PSE has a new online disclosure system. From then on, too, company disclosures will no longer be updated in the old PSE main website. Instead, they will be seen at http://edge.pse.com.ph. Happy New Year!

(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)