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

end