Where PSEi stands and what you should do

January has come and gone. After a massive decline in the Philippine Stock Exchange (PSE) index from May 2013 to December 2013, January tried to show some signs of life, closing out the month with a gain of around 2.6%.

Now, foreign funds continue to sell. As they anticipate recovery in more developed markets and jitters across emerging markets remain relevant, we can expect more and more funds to flow out of the Philippines.

However, does this change the fundamental values of the stocks listed on the PSE? Not at all! Rather, because foreign funds are selling, local stocks continue to be battered down. This means that your favorite blue chip companies just keep getting cheaper and cheaper.

Company earnings, growth and value are all there for our listed companies but the price to purchase those stocks just got cheaper. If the stock market were a mall, you’re in the middle of a sale. It’s not a question whether stock prices will come up again or whether foreign funds will come back, it’s a question of how well positioned you are when the market goes up again.

Did you know that the market went up from around 1,800 to 7,400 all in a span of 5 years? But the sad thing about that is foreign funds made the most out of those earnings and not us. This is the time for us Filipino investors to take advantage of the relatively cheaper prices in our market. After all, we’re buying homegrown companies like Jollibee, BDO, Ayala Corporation, and SM. It’s just right that we benefit from the growth.

Now with the market slightly up from January, if you are a trader or an investor, here are some tips:

If you are an investor for the long term, you can use this time while the market is still bearish to accumulate those relatively cheaper stocks. Your goal should be to buy as many as you can while the market is cheap.

As to which sectors, I really like consumer-related companies as they are at the forefront of our economy. There is more money moving around and more Filipinos are spending. As they spend, those companies earn more and expand. In turn, as those companies grow, their stock prices will always follow and move up.

I also like construction-related companies, given that the government is spending more this year on infrastructure, and the private sector continues to build more office buildings for outsourcing companies and condominiums for the middle class. It will be construction companies that will be a direct recipient of this growth.

For the economy to grow further, a more robust infrastructure should be in place. That’s why construction companies will be right smack in the middle of all this development.

If you are using peso-cost averaging, you may also accumulate the same companies as the long-term investor. Market volatilities should not bother you and you should not worry yourself about market timings. You should stick to your plan and regularly put in the same amount to accumulate those stocks regardless of market conditions.

The key for you is to be mechanical if you are going with this technique.

If you are a trader, going in and out of the market, there are select stocks that will perform better than the PSEi like JFC or ICT.

Looking at the PSEi now, it is still bearish. The long downtrend line in the chart below must be broken upward for the market to get out of its 9-month downtrend. Also, we have to break past the moving average slated at 6,445 (green line) for the market to move from bearish to bullish.

If you are trading and already have positions when the short-term uptrend started, you should watch the 6,000 level. If this does not hold and the market goes lower, you may want to consider to take profits and come back and buy again when the market goes down a bit at around 5,738.

There is no style or strategy that works perfectly. For each tip, there are pros and cons.

What you need to do is choose the type of investor you are, pick your own strategy, find out which fits you the most. To be profitable in the market is to be consistent with your own strategy. Plan and stick to that plan regardless of what your barber or closest friend would tell you is the hottest stock pick out there. – Rappler.com

Marvin Germo is a registered financial planner, an author, personal finance consultant and a stock market trader and investor. He has around 7 years of experience in the Philippine financial industry. He specializes in technical analysis and position trading. Read his blog. Follow him on Twitter: @marvingermo