What to expect in the next 3-5 years and what you should do?

After about a month of vacation from blogging, it feels great to be back to writing and sharing my investment ideas again. If you are following the news about the US debt crisis, Euro zone bailout of PIIGS (Portugal, Ireland, Italy, Greece and Spain), I am sure that you are anticipating a commentary from myself on how these economic giants would impact our economy, not to mention the Philippine Stock Market.

If you have holdings in the Philippine Stock Market or in one of the Mutual Funds and have been contemplating about selling your positions or doing some top slicing and if  you are going to ask me as to whether you will stick or bail out, my answer would be a big NO.

Below are the following reasons why the current crisis in US and in Europe should never dissuade us from investing in the Philippine Stock Market or in Mutual Funds:

1. On a YTD basis, the Philippine stock market is up by 7% and since the great rotation during the 1st quarter of this year, PSEi (Philippine Stock Exchange Index) is up by 21%.

2. Our GDP is supported by the ever increasing performance of OFW remittance now already accounting to 9.4% of our total GDP which amounts to almost $20 billion. A huge pile of money enough to keep our economy afloat and insulated from crisis such as debt problems is US and Europe and inflationary problems on commodities.

3. The PPP (Public-Private Partnership Program) of the Aquino administration which is expected to be rolled out in late 2011 and 2012 will amount to $2.8 billion worth of investments that will bolster the economy in terms of providing jobs and businesses to the local people, businesses and other institutions.  Upon completion, the aviation sector, property sector, oil-gas exploration, energy, mining and transportation will reap the full benefits of this scheme.

4. The credibility and leadership of PNOY and his administration which has not been plagued with scandal and their focus on curbing graft and corruption. After watching SONA 2 weeks ago, I became more convinced that I/we should remain and increase our investments in our country.

5. Foreign individual and institutional investors from DM (Developed Markets such as US, Canada, France, UK) are re-allocating their funds to EMs (Emerging Markets such as China, India, Malaysia, Thailand and Philippines) considering the reversal of trend which tells the big story of Asia as the "Factory of the World". Currently, 50% of global GDP is attributable to Asia. And I just read in the news this morning that at current trend, Asia will replace the Americas and Europe combined as the biggest economy by year 2050.

The above are just some of the reasons why the Philippine Stock Market despite the looming budget crisis in US and Euro zone has been reaching all time highs for 7 times this year. The above are the reasons why my stock market portfolio is up by 6% YTD and my mutual fund holdings by average 8%. But since I started investing in August 2010 which is exactly a year ago, my Consolidated Portfolio (stocks and mutual funds combined) is up by 13%.

According to Economic Experts, bull runs like what we are experiencing now which started last year usually would last for 5 years. So it is no brainer to say that if you are not yet invested, enter the market at once and if  you are already invested, keep on investing. My personal opinion is that 5 years is a conservative forecast that the bull run will last, my take is it will last for 10 or even more years since for example, the profitability of PPP projects will reach its fullest potential after 5 years, uptrend in the OFW remittances and BPO expansions. The Philippines like India and China is not only an export driven country, businesses here in the Philippines thrive and expand because of local consumption. So my conclusion is even without Uncle Sam, the Philippine economy will do better.

Before ending this blog, I would just like to share with you the FMIC-UA&P Markets Research on their analysis of the equities market followed by my letter to my family and friends who are also into investing.

• Equities Market

In the 3^rd year of the bull market, the PSEi reached another all-time high and finds itself in uncharted territory. The strong performance was a consequence of tailwinds coming from robust inflows from foreign investors amidst headwinds from the US and euro-zone. The development is consistent with our view that foreign fund managers will choose to rotate back to emerging market equities in the 2^nd half of 2011. Moving forward, we view continuation of the rally to depend heavily on earnings results and the acceleration in “hot money” flows rather than purely macroeconomic issues.

- Courtesy of FMIC-UA&P Markets Research

Letter to my family and friends.....

Dear All:

I have highlighted in red the outlook on equities done by FMIC-UA&P Team..

If you are already invested in the stock market or mutual funds, just continue with your peso cost averaging or investing each month buying only GREAT companies with good growth potential.

If you are not invested yet, enter the stock market at the soonest in order for you to capitalize on the bull run in the 2^nd half. This would be a good positioning in preparation for year 2012. Expect that the robustness will continue  for the next 3 to 5 years as the awarding of PPP contracts and completion of PPP projects in the Philippines will go full swing beginning next year. This year alone, 7 PPP projects will be awarded from airports, rail networks, oil exploration and land development to various companies mainly conglomerates in the form of Ayala Corporation, SM Investments, Metro Pacific, JG Summit etc.

If your net worth is 100% cash, it would be prudent to have a variety by re-allocating 20% of it by investing in the stock market or mutual funds. If you are aggressive, you can follow the 100 minus your age rule which simply means that if you are 30 years old, 70% should be invested in paper assets (stocks, mutual funds, bonds, treasury bills, gold certificates, etc). Personally, I keep 40% of cash and the rest I invest. This strategy works fine with me enabling me to sleep at night without worrying should the market collapses the following day. In your case, you would have to assess your risk appetite taking into account your future needs and comfort factors by asking yourself “would it be ok with me if the market goes down tomorrow by 50%?”. If your reaction is to sell when the market goes down by 10% the next day, better put your cash in banks where it will only earn a measly 1-2% interest per annum minus withholding tax. At the end of the day, it is all up to you.

Wish you luck.

Regards,

Anselm