More on bottom-up investing

You may have missed this important news: The Bangko Sentral ng Pilipinas (BSP) has decided to extend the deadline for the demonetization of the old peso bills for three more months.

This means the old bills, known as the new denomination series (NDS) banknotes first launched in 1985, may still be exchanged for the new generation currency (NGC) banknotes until March 31, 2017. The deadline was previously set on Dec. 31, 2016.

The decision was made due to findings that as of Nov. 30, 2016, about 295.7 million pieces or 8.86 percent of the 3.34 billion banknotes in circulation (BIC) were still NDS banknotes. These old bills have an estimated value of P23.3 billion.

Overseas Filipinos may also continue to exchange their old peso bills. They can place their reservation for NGC notes online by registering at orbs.gov.ph. The limit per registration is P50,000.

Considering that the P23.3- billion worth old bills are about 2.4 percent only of the present money in circulation of P979.9 billion, the BSP said it may no longer extend the March deadline. On April 1, 2017, therefore, the NDS banknotes will actually cease as legal tender and will no longer be honored as payment for goods and services.

Last week’s trading

As anticipated, the market last week slowed down on profit taking and suffered its first decline for the year on Wednesday. The fall also cut short the market’s six-day advance.

At that instance, the Philippine Stock Exchange index (PSEi) lost 42.52 points or 0.58 percent to close at 7,321.82. The broader All Shares also fell 8.86 points or 0.20 percent to 4,408.27. The market’s decline continued in the next two days.

The retreat was seen as a tactical move by some investors to pocket their gains ahead of US President-elect Donald Trump’s inauguration and formal assumption of office on Jan. 20.

Trump is expected to reveal his administration’s policies on global trade and China, most especially. These issues are the subject of serious concern presently creating market volatility.

Interestingly, it was the local punters rather than the foreign investors that resorted to this tactical move. Foreign investors were buying all week until they reversed tack on Friday and became net sellers.

However, while foreign investors were more into buying, they were observably cautious and calculated. Their market participation ranged from a low of 39.05 percent of total market transactions to as high as 46.33 percent last week. This rendered their overall market participation to only 44.31 percent of total transactions.

Bottom line spin

As discussed, the first step to bottom-up investing is the identification and selection of target stocks. Knowing what the dominant players in the market are buying or selling is one good way to guide you to this task.

In this case, it’s what the foreign investors are doing because they have generally dominated the market’s overall transactions. The trend of their overall transactions has, to a large extent, influenced the market’s direction.

This step, however, must be followed by a confirmation process. Last week’s performance is a good starting point.

While the week was more confined to selling, the transactions were motivated by profit-taking more than anything else.

This is quite unique in our local market. The reason behind this is that local punters are generally traders. This is why our market has remained small. It has not grown that big like other markets dominated by long-term investors.

To digress, with our growing population and economic fundamentals, our market is starting to be a potential investment alternative for long-term investors.

True enough, while foreign investors generally indulged in selling last Friday, their transactions were confined to where they had their buying spree in the last three weeks. Most of these were in the holding firm, consumer/retail and banking sectors.

The stocks they most probably sold on profit-taking last Friday were BPI, Metro Bank and Security Bank, Alliance Global, Lopez Holdings, LT Group and SM Investments, Manila Water, Petron, Jollibee Foods, Max’s Group, Megawide, Ayala Land, SM Prime Holdings, Nickel Asia, and Semirara Mining, among others.

They also appeared as big buyers of Pilipinas Shell and Shakey’s, which I believe were but a part of the price stabilization effort to these recently listed stocks.

Stay tuned for more discussions on bottom-up investing.