02 downmove of stocks 2013 june

Philippine (& ASEAN) Stockswere Affected by Fed Chairman,

Ben Bernanke’s …statements

Investor: searching, where to invest…

Low price, good potential

UP 62% since Jan 2012

Philippines:DOWN 16% since May 22

Reasonable to expect a “rest –period”

June

330

200

50

300

1600

2800

5

25

40

595

450

200

1200

4000

6100

Marathon

Level of

2000

7300

No pause, for rest… ? Even

Runners pause to rest...

Year 2009

January 2013December

2013

“Shot uptoo soon”

Fundamentals are Intact.

Mostly U.S. Investors, have fled…

7300

25%

5800

Good News

Credit rating: investment grade.

? June-AUG ?

January 2013December

2013

It was a “SPIKE UP”

Possible Path ? till December

7300

25%

5800

TOO SOON !

? Sideways Move?

0%

US $

IF U.S. Economy...

“I think, I MIGHTSTOP...Q-E”

IF...?grow-ing fast?

1%

?Last week:

Bonds!

Stocks!

Zero %US $

U.S. Economy

Lower Interest Rates

“Very Slow”$ “escape” to Asia

Back- ground to the Story

How to ... REV UP ...the ENGINE

Zero %US $

U.S. Economy

Lower Interest Rates

REV UP ENGINE

“Very Slow”$ “escape” to Asia

Why ‘REV UP’ the engine?

U.S. Economy is growing, too slow.

Stimulate it!

Overheating: inflation

Depression: No Jobs

bad

badbad

US economy: cycle

“Cool OFF” the Overheating

“Stimulate” to ward off Depression

Best Case!

“Cool OFF” the Overheating

“Stimulate” to ward off Depression

Best Case !

Two ways to stimulate the economy: 1. Government spends

2. Lower... interest rates

“Stimulate” to ward off Depression

Government spends, to “prime

the pump”

Lower Interest

Rates

If ...US Economy is WEAK … Growth is SLOW...

“Stimulate” to ward off Depression

Government spends, to “prime

the pump”

Lower Interest

Rates

If ...US Economy is WEAK … Growth is SLOW...“Quantitative Easing”

… “Q.E.”

0%

US $

IF U.S. Economy...

“I think, I MIGHTSTOP...Q-E”

IF...?grow-ing fast?

1%

?Last week:

Bonds!

Stocks!

ASIA

USA

US $

US $

Dollars “FLED” to the Mainland USA

ASIA

USAUS $

Asian Markets

FELL

Philippines:-16% since

May 22Indonesia:

-5%Thailand:

-6%

First time to see RED?

Philippines:-16% since

May 22Indonesia:

-5%Thailand:

-6%

Declines happen, every year !

Get used to it !

2010: -14%

2011: -14%

2012: -7%

Three DECLINES. In every instance, the market recovered,

and moved up higher.

One or Two, per

year

2010: -14%

2011: -14%

2012: -7%

RESILIENT AND TOUGH

One or Two, per

year

DESPITE ...30...typhoons ....every year

Once this market

recovers...

HOT MONEY

will come galloping

back

+

PSEI Index

2008

2013

Observation: the market RECOVERS

Survival against Earthquakes

PSE “index” of the top 30 stocks

1988 - 1991

PSE “index” of the top 30 stocks

1992 - 96Survival against Pinatubo

PSE “index” of the top 30 stocks

1993 - 98Pinatubo, Asian Fin’L Crisis

PSE “index” of the top 30 stocks

1997-2002Money fled to USA internet bubble

PSE “index” of the top 30 stocks

1997-2002Europe Crisis. Greece...

PSE “index” of the top 30 stocks

2009- 13

Spike UP +Ben Bernanke

Mouse on the edge

Decision-making, under uncertainty

Will it rain tomorrow?

I will bring an umbrella

I will bring an umbrella

I won’t bring an

umbrellaNO

Maybe

Yes

Decision-making, under uncertainty

Will the market

rebound?

I will avoid stocks forever

Buy stocks, between 6000 and

5000

Buy stocks, between 7000

and 6000Yes, at 6000

Yes, at 5000

No.

6000

Yes, the market will rebound at 6000

This implies, the economy is still growing, Business is still good.

New batch of investors will

arrive...

5000

Yes, the market will rebound at 5000

This implies, the economy is still growing, Business is still good.

New batch, was delayed, due to traffic.

1500

“No, the market will never rebound”

This implies “total devastation.”

Even the locals are emigrating.

Extreme pessimist:

Intramuros

*BACKGROUND TO THE STORY

Interest rates have declined in the Philippines: > good news for businessmen,

> bad news for lenders or for bond investors who “hold to maturity.”

Interest Rates Less Risk factors Lower Cost of Borrowing…

2002 2008 2015

10%

6%

1%

2013

14%

Time Deposits, Cash …

PHIL. Bonds… PHILIPPINES

High vs LOW PER

Expensive Stocks Cheaper

Stocks

Money USUALLY flows from the

Towards the ....

QUIZ

Philippine PER : if deemed HIGH

Rest-of-the-World PER: if

perceived to be LOWER

What is likely to happen ?

What will happen next?

Using the PER of Phil Index = Market Cap / Earnings.

??

Philippine P.E.R.: if LOW

Rest-of-the-World P.E.R.:

if HIGH

IF so, then Money would flow to_____?

Proxy variables are PER of theUS indexes, UK, Japan indexes.

Using the PER of Phil Index. = Market Cap / Earnings.

??

Expensive Stocks

Stocks with great

Potential

Cheaper Stocks

QUIZ: what if the money keeps flowing into the expensive market?

Why is the Philippine stock market –continuing to rise?