Doing well and doing good

The market will continue to move sideways for some time, weighed down by the psychological impact of the Chinese ghost month on investors and a correction to a relatively overbought situation.

As of last week, the 30-company component of the Philippine Stock Exchange index continued to trade at a relatively high average price-to-earnings multiple (PE ratio or PER) of 22.23x and a moderate year-to-date rate of return of 14.65 percent.

The property counter was the most expensive, with an average PER of 27.71x.

To digress, the PER is not the ideal metric for the valuation of property stocks. But when used consistently to compare the relative value or price of other similar property assets, it retains its sense as an applicable, valid measuring tool.

In the last four weeks, the property sector has advanced by as much as 6.67 percent (2.16 percent was gained just last week).  The sector has a year-to-date rate of return of 25.09 percent.

If the market continues to fall as a whole like it did last week, the property sector’s movement may slow down, too, to give way to profit-taking.

Next is the services sector at 26.34x PER.  It has been actually on the decline, losing as much as 3.38 percent of its price in the last four weeks. Interestingly, the sector has a year-to-date rate of return target of only 4.04 percent.

Its low rate of gain indicates it has been overbought for some time now. Considering its high PER, which is above the PSEi average of 22.23x and the All Shares index of 19.75x, any chances for bargain hunting may not yet occur. Nonetheless, keep a close watch.

It is still very active it could possibly have some issues worth a “trading buy.” Of course, this advice is only applicable to short-term players. Otherwise, stay out and be on the lookout for value.

Third on the line is the mining sector, which has been hit hard by weak fundamentals and by aggressive regulatory review as of late.  The sector is trading at an average PER of 25.52x with a year-to-date rate of return of only 4.58 percent. Since concrete or more specific policy pronouncements have yet to be announced, the mining sector will remain soft.

Fourth and fifth are the holding firms and industrial sectors, with PER of 20.25x and 19.18x, respectively.

The holding firms sector has gone up 2.65 percent in the last four weeks (but lost 0.34 percent last week). With a year-to-date rate of return of 18.60 percent, the sector could be seeing more sell-offs this week, especially if Wall Street will continue its current uptrend.

The industrial sector grew as much as 4.16 percent in the last four weeks.  With a year-to-date rate of return of only 10.95 percent, it is possible the sector may experience as much sell downs as the holding firms stocks this week.

The financial sector has the lowest PER at 16.59x.  The sector advanced 4.25 percent in the past four weeks, gaining 1.32 percent of it only last week.

With the sector’s gain resulting in a market return of 18.67 percent since the start of the year, it is expected market participants will go for the profit. This is the logical move in view of the low interest regimen again adopted by Japan and, lately, the UK.

Interestingly, the market’s average daily turnover has increased by at least P1 billion to P8.4 billion.  Transactions have been confined to second and first liners, a good indication investors are holding on to issues that have long-term prospects.

Foreign investors ended up as net buyers last week, but their overall participation was low at 45.98 percent. This is low compared to their previous records of 55 to 60 percent.

Last week’s record, however, showed an improvement from the previous week. This could indicate they are just on the sidelines waiting for the right moment to enter in full force.

In summary, we could say the market is healthy and is far from any serious threat of falling beyond the tight range it is expected to track until the end of the month.

(You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)