d6 volume and liquidity
DESCRIPTION
Like water flowing into a lake or dam, money flows into the stock market.TRANSCRIPT
Volume & Liquidity
… as Measures of INVESTOR SENTIMENT.
Theme: Surviving the Market.
March 2, 2011Mark Angeles, Gus Cosio, Sandy Gilles
Hold Long-Term“Most prudent”
method of investing.
Base Case: •6% annual economic growth•18% annual earnings growth.
“BULL market ”
“BEAR market”
“BULL market”
“BEAR market ”
Survive the “DIPS.”
BE present at the “RALLY.”
“BULL market ”
“BEAR market”
“BULL market”
“BEAR market ”
Keep your COOL.“Strong Hands”
If you bought at 2000
For survival:
Will the stock market keep on rising? Will the stock market keep on rising?
1. It depends: on the amount of money flowing in.2. It depends: if the market can absorb the money.1. It depends: on the amount of money flowing in.2. It depends: if the market can absorb the money.
Is there money flowing in? Is there money flowing in?
Can stock market absorb the money?Can stock market absorb the money?
Money will flow in, if prospects are goodMoney will flow in, if prospects are good
Are prospects good? Yes, we have goodeconomic outlook, business conditionsAre prospects good? Yes, we have goodeconomic outlook, business conditions
Yes, if only more securities get listed, traded,Listed: More IPO’s needed. Traded: more “free float” in hands of public.
Yes, if only more securities get listed, traded,Listed: More IPO’s needed. Traded: more “free float” in hands of public.
The flow of funds…to the stock market …is like a river in a valley.
The flow of funds…to the stock market …is like a river in a valley.
Build a DAM, raise the river, form a lake.
Build a DAM, raise the river, form a lake.
Water level goes up, over time.Until it overflows the dam.
Build a taller Dam, To capture more water, Raise the level of the lake.
Funds “stay voluntarily,”in a stock market that is attractive.
A DAM “traps” the Water
Feb 2009 to Feb 2011
Investors sometimes pull out cash from the stock market …To spend on household.
Jan 2007 to Feb 2011
Strong Hands = invest, and stay invested. They can pull out anytime. But they stay.
GSIS of South Korea = $270 bnGSIS of South Korea = $270 bn
Example of “Strong Hands” = SOCIAL SECURITY SYSTEM, GOVERNMENT SERVICE INSURANCE SYSTEM = $ 6 billionExample of “Strong Hands” = SOCIAL SECURITY SYSTEM, GOVERNMENT SERVICE INSURANCE SYSTEM = $ 6 billion
GSIS of Holland = $313 bnGSIS of Holland = $313 bn
GSIS of Norway = $450bnGSIS of Norway = $450bn
GSIS of Japan= $1,370 bnGSIS of Japan= $1,370 bn
Bigger Dam
Higher Water Level
More IPO’s
Money for Stocks Free Float
MORE
What assures us that the index will keep on Rising?
What assures us that the index will keep on Rising? More Water + Higher DamMore Water + Higher Dam
MORE
MORE More IPO
So we want to anticipate liquiditySo we want to anticipate liquidity
Are investors buying Philippine stocksWill they continue buying?…depends on:• Are philippine stocks good to buy, for local
residents?• Is money flowing out of other markets? Into
the Philippines?
Telecom stocks: 18% a year, for the last 18 years
High RiskLow Risk
Low %
High %
Food: 14% a year, for the last 14 years
Bank stocks: 11% a year, for the last 11 years
Bank Deposits: 3%
Inflation: 5%
What is the outlook for Philippine stocksInvesting Buy-and-Hold. * You could make more by frequent trading
Probably the sameas recent history
Pacific Basin
10 15 20 25 30 35 40 45 % Risk
Rate of return %
18
16
14
12
10
8
6 Canada
USA
Europe
AustraliaU.K.
World
Low-Risk,
High Return
Low-Risk,
High Return
High-risk,
Low Return
High-risk,
Low Return
What was the history. What are the prospects?
Investors study the FORECAST for this chart.
Brazil, India, China
Russia
High-risk,
Medium -Return
High-risk,
Medium -ReturnJapan
Pacific Basin
10 15 20 25 30 35 40 45 % Risk
Rate of return %
18
16
14
12
10
8
6 Canada
USA
Europe
AustraliaU.K.
World
Average of 22% a year. Might go up 50% within a year, might also suffer some -8% declines.
Brazil, India, China
Russia
Expected Returns of 22% a year
Expected Returns of 22% a year
Risk of 30% a year
Either 22+ 30
or 22 – 30
Risk of 30% a year
Either 22+ 30
or 22 – 30
Japan
Money flows
Tourism $
Direct Investment
Portfolio Investment
Gifts & Grants
The PhilippinesThe Philippines
EconomyEconomy
Stock marketStock market
BOND marketBOND market
Real Estate, Factories, etcReal Estate,
Factories, etcINVEST-MENT
Forecast of IMF, quite positive, for a change.Forecast of IMF, quite positive, for a change.
Tokyo
When do Philippine stocks move up? When money flows into the stockmarket.
LondonNew York
LARGEST MARKET
SECOND LARGEST
THIRD LARGEST
Tokyo
IN 1990s, strong funds flows into Asia 1995 - 97
LondonNew York
ASIA funds
Tokyo
Pull out in 1998, but returned cautiouslydue to the strong ECON growth of the region.
LondonNew York
ASIA fundsASIA fundsExcluding JAPAN
Emerging Market Funds
Tokyo
Other parts of the world are in trouble?Move funds to Asia.
LondonNew York
ASIA fundsASIA fundsExcluding JAPAN
Emerging Market Funds
Russia
India
Middle East
Rest of Europe
Central America
South America
Canada
China, Hong Kong, Taiwan,Singapore
Thailand, Indonesia, Malaysia, Vietnam
Central Bank news: 'Hot money' inflow in February. “Hot money”, usually invested in stocks, surged 176
percent to $650 million as of Jan 01 -Feb. 11, up from $235 million in same period last year.
The index may trade lower first week of March, due to geopolitical concerns. Downside will be limited as bargain- hunters will scoop up depressed shares that have fundamental appeal.
This week, a number of key index constituents will report full year 2010 earnings. Investors would like to see this year’s earnings prospects.
Conventional Funds invested in the world: 71 TRN dollars
=Pension funds = 28 TRN mutual funds = 22 TRNinsurance funds = 21 TRN
The largest 300 pension funds collectively hold about $6 trillion in assets.
IN answer to the question: who will do the big-time investing in stock markets
IN answer to the question: who will do the big-time investing in stock markets
Add the alternative assets = hedge funds, private equity funds, exchange-traded funds
Total funds invested = 105 TRN
PHIL Economic production = $350 bn * In terms of PPP for fair comparison.
Economic production
GDP in $ bn
Philippines $350bn
Switzerland $354 bn
Singapore $184 bn
GDP per capita / year
Philippines $3700
Switzerland $45,000
Singapore $39,567
That is why Singapore has impressively large numbers of investors in MUTUAL FUNDS.
AmericaEurope
AsiaAfrica
Middle East
Australia
Today
AmericaEurope
AsiaAfrica
Middle East
Australia
Future
• Technical analysis is the study of the price movement using the historical prices as interpolated in charts.
• The main idea is to know how the price moves, to determine future price levels.
• Charts: trends and patterns that can help you
Technical Analysis INPUT
Logic:• You can predict future
prices by studying past prices, or past behavior of prices in response to certain events.
• Logic: 1. The market discounts everything. 2. Price moves in trends. 3. History tends to repeat itself.
Language:• Instead of talking about
sales, earnings, economic growth, or cashflows, we will now talk about prices.
IT talks about …• Patterns in Price charts• Continuation patterns
– Formations– Trendlines
• Reversal patterns • Signals
Technical Analysis INPUT
• Indicators: money flow, trends, volatility, momentum.
• Upmove + volume = good momentum – it has a longer way to go. It has PUSH.
• Good volume confirms a trend. It confirms the momentum.
• Low volume = weak trend
Momentum Indicators
• When volume tells a different story, it is a case of divergence, which refers to a contradiction between two different indicators.
• The simplest example of divergence is a clear upward trend on declining volume. “Price is moving up, BUT NOT FOR LONG.”
Volume as indicator
Low VolumeLow Volume
Quick Surge UPWARDS.Water Spills over. Return to Lower Level.
Volume = number of shares or contracts that trade over a …. day. The higher the volume, the more active the security.
Volume bars illustrate how many shares have traded per period. THEY SHOW TRENDS, in the same way that prices do.
If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end.
Reversal pattern at peak of high volume
Reversal pattern at peak of high volume
LOW volume: the rally loses steam
LOW volume: the rally loses steam
Reversal pattern at peak of high volume
Reversal pattern at peak of high volume
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