2013 was a roller coaster ride for PSE.
It reached its peak within the first half of the year, only to pull-back thrice and wipe out its gains for the year. All the hard work and climb was erased. Such is life in the stock market (temporarily).
Should we fear?
Not if you’re investment horizon (‘H’ in ‘OHA’) is long-term. I’m sure many were able to cash-in on the brief stay of the market at the top (like banks who registered one-off extraordinary trading gains), before it all went downward for the rest of the year. If that includes you, congratulations! If not, again, worry not and hang on.
Many reasons may be cited for this roller coaster ride and no one reason surely holds the sole explanation as to why. But primary reasons are:
1. Globally: Continued and eventual tapering of US stimulus aka quantitative easing (finally). Talks and fears of an impending tapering bothered the markets around the world for pretty much the whole 2013, and at the latter part of last year, the US government (finally) laid out its plans for the gradual tapering. We all knew the party of virtually overflowing money supply will not last, but heck we know how to party hard while supplies last. Add to this the US debt-ceiling issue, European woes, etc.
2. Locally: RP scores major upgrades to investment ratings, while many more analysts continued to rave about how RP is ASEAN’s rising star aka next economic power. We also cannot escape the eyes of foreign funds (hot money), who of course look for good investment options. Nonetheless, in case they see better investment options somewhere else (e.g. USA), they immediately sell our equities which adds to the downward sentiment. Add to this more internal factors in our favor such as OFW remittances, growing BPO (and real estate) industry, or against us (corruption issues, lack of good governance) etc.
3. More Locally: Our economy and our PSE companies continued to perform well, albeit some setbacks and natural calamities heard worldwide. Nonetheless, fears that the economy will suffer from the effects of Yolanda may now be lessened. Yes, the effects may be long-term and wide-spread, but GDP figure-wise, the affected areas mathematically make up 2% of the country’s GDP. So in that sense, the numerical impact is contained.
Our country’s economy remains fundamentally sound and is still expected to register good growth numbers for 2014, estimated at ~6+% from 2013’s ~7% levels. So not bad at all. BSP is also ready to address certain financial shocks brought by US tapering, and its effect particularly to PHP.
Hopefully, we see more progress in our government’s infrastructure projects aka PPP so we realize its impact pretty soon (but likely not this year).
And we have shown our capacities to unite and help one another and those in need during the major issues such as corruption or with the calamities that hit us, so hopefully this year, Juan need not be provoked by such issues and calamities, but instead be ready to initiate, to unite and to help improve Juan another’s lives as BAU.
As for the stock market, let me share with you excerpts from Truly Rich Club‘s interview with COL Financial’s Mr. Edward Lee.
…when you have a short-term pullback like this, it really scares people because you see your portfolio go down. If you’re investing for the long-term, you should look at it as a great opportunity to be able to accumulate all these good companies at market price. You should not be doubting about the long-term strategy. The discipline should be there. You should continue to deploy on all these companies, especially during this difficult time.
[remember the] …comment of Peter Lynch that for the short-term, there is really no correlation. Meaning success of the companies’ performance and success of the performance of the stocks are not correlated. But long-term, it’s a 100 percent correlation based on earnings, earnings, earnings. As this company continues to generate more earnings moving forward then it’s just temporary pullback, set back, but for us, it is the best time for us to continue to deploy. I think what we need to tell them is that the maximum really is only 20 percent of their savings that goes into stock market investing. Because if they do more than that, they will really get scared. They will have their stomach ache and they will probably sell at the bottom. [They call this sell down your portfolio to sleeping levels]
[Will the stock market rebound in 2014?] Well, the sad part about this is that we have an earning’s peak. We have the highest earning for the Philippine Composite Index in 2013 and the problem is that by 2014, you will have a single earnings growth [due to effect of higher base number from 2013]. Meaning, the estimate is about 6.5 to 7 percent in terms of earnings of EPS growth for the Philippine Composite Index. Because of that we believe that the market will just continue sideways for about a year, nine months to a year. That’s supposed to be good for us because when we have the sideways environment, whatever we’re deploying today, we will have a lot of time to deploy further because we believe by 2015—because this year  is a high based and next year will be a low base—so going to 2015, we will go back to the double digit earnings growth. So 2015 should be the best year but you need to accumulate this time .
So fret not long-term investor friends. In case you missed the run up of 2013, then here’s the chance for you to catch the market at pre-2013 levels. In case you got ipit or stuck at the peak of 2013 party, I leave it up to you whether to sell or not. I myself have a handful of ipit stocks. I just remind my self that I bought (which I believe are) fundamentally sound companies, and if I was willing to buy at higher levels, what more now at bargain levels.
I just don’t expect 2014 to be the same as 2013’s roller coaster ride. I don’t expect to reach the 7400 levels anytime soon. But who knows? Might be a bit boring this year, but for one who has limited funds coming from various months of the year (ahem), that might even be good news.
I leave you with a historical chart of PSE, from 2002 to 2013. The next 10 years will never be exactly the same, but chances are high that the trend will be. Goodluck to us this 2014!