July 18, 2001

Fluke

It would seem that today's strong performance is a fluke. After all, it would seem premature for any technical correction or bargain hunting to take place because there are no clear signals to indicate such. That aside, we've said before that speculation can be the only alternative valid reason for a rise. There was a buzz earlier than SMC has already won the bidding war for Cosmos, but then again SMC was not a strong performer today. Therefore we cannot attribute the rise to that issue. Then again, both SMC and SMCB registered intra-day upticks of P0.50, but there was much selling pressure on both and so the gains were pared in the end.

What makes the market's rise particularly "brave" is the fact that the peso weakened anew, breaching the 44 to a dollar level. In the morning session, the peso hit a low of 54.22, although the average was at a stronger 53.8. With this development, the BSP remained in the sidelines and once again said that it did not intervene directly in the market. However, with the depreciation unabated, some currency dealers have said that the BSP has no other recourse than to raise its overnight rates. The BSP also declined to do this. And so as it was over a week ago when then peso was threatening to breach the 52-level, the next move is with the BSP. Will it become a tradeoff between forex and interest? For sure the latter will have its adverse effects. Wasn't it just the other day when some dailies published that NPLs of commercial banks in May averaged 16.81%. And before that, the government's promised P125 hike of the minimum wage also threatened employer companies to a point that they feared closure and thousands of layoffs.

With all these unresolved, we reiterate our expectation that the market will see lower levels in the coming weeks. 1370 remains as our chief support level.

Meanwhile, there were a number of interesting developments that we believe should be noted. BPC rose mightily by 7.95% to P1.9. There hasn't been any news on the company, nor has the company made any disclosure lately, nor will it benefit from the volatile forex given its foreign debts. Well the rumors circulating is that the company may sell some assets, although such doesn't really warrant a spike in the issue's price.

RFM on the other hand finally succumbed to selling pressure after performing well with a backdrop of a dismal market. Just as well, since we've had a trading sell recommendation on the issue for a number of days now. RFM dipped by 6.67% to P2.38.