First step on bottom-up investing
How time flies. We were just celebrating Christmas when the New Year came rushing in, and before we knew it, a week of trading in 2017 had passed.
And guess what? The market had been climbing at a fast clip on bargain hunting. More than that, foreign investors were taking the lead in the hunt.
The market actually started low and slow when it opened trading on Jan. 3, Tuesday. Net advance for the day was only 20.67 points or 0.30 percent on a value turnover of P2.68 billion and total volume of 664.2 million shares.
The market’s advance, on the other hand, was precipitated by the aggressive buying of foreign investors for the day. Total transactions from their side was 51.89 percent of overall market transactions.
On Jan. 4, Wednesday, the market again opened higher. It also chalked up 169.64 points or 2.47 percent to close higher at 7,030.95.
Total value turnover was also strong at P7.09 billion. Local investors were identified as largely responsible for this development as they took on 53.25 percent of total market transactions—and rendering foreign investors’ market participation to only 46.75 percent. Still, foreign investors’ buying transactions for the day more than doubled compared to the previous day.
The market made another advance on Thursday, with total value turnover soaring to P10.87 billion.
First, this meant that the market’s hunt has shifted to big ticket or blue-chip stocks. Second, the shift was triggered by foreign investors’ strong buying activities for the day that made their market participation to jump to 52.88 percent of total market transactions.
The following day, Friday, the market opened lower by 24.98 points at 7,184.46 but managed to hit the session’s high of 7,289.51 before slipping to 7,181.69. It closed the day with a net gain of 38.76 points or 0.54 percent. Total value turnover for the day also fell to P8.56 billion.
This made the market’s year-to-date advance to 5.96 percent on an average daily volume of P7.25 billion. Add this to the net advance of 4.22 percent it made on the last trading week of December 2016, the total net advance by the market in the last two consecutive weeks was no lesser than 10.18 percent.
It was no wonder that Friday’s total value turnover fell 25 percent lower to P8.15 billion and foreign investors’ market participation also dropped to 47.61 percent.
Bottom line spin
Considering the buying spree in the last two weeks, it is very possible the market may slow down a bit this week. The market’s advance, on technical terms, had been too fast and too soon.
While the market will largely stay bullish, local and foreign investors alike will not be as aggressive in chasing their favorite stocks.
This was seen during last Friday’s trading results. Prices continued to go up, as evidenced by the continued advance of the benchmark index, but total value turnover slowed down to P8.15 billion compared to the previous day’s P10.87 billion.
Barring unexpected developments that will change the mind-set of buyers, sellers wishing to preserve their earned profits may be forced to let go of their holdings this week. As a result, the market may still continue to advance this week, but at a slower pace.
For instance, Security Bank Corp. was one of the top losers last Friday along with Ayala Corp., which actually gained by as much as 8 percent on Thursday. These two showed the market was on the hunt for first and/or second line stocks. But due to the market’s tenuous condition, some early birds could not help but sell to preserve earned profits.
The first step to bottom-up investing is to identify a good target stock. To do this, find out what the market is buying at the beginning of the year.
In this case, the market’s current run-up is propelled by its search for good first and/or second line stocks. More precisely: those from the holding firm, consumer/retail and banking sectors.
Let’s continue the study on bottom-up investing in the next article.
