The Philippine equities market welcomed a new trading system last week, but the latter failed to fire up investors.   The lack of negative news and the use of the new trading system kept volatility at a minimum.  Short term traders were sidelined, pulling down trading activity to its lowest for the year.   The reduced volatility was a positive for share prices as it created a perception of less risk.  The system along with some favorable earnings results helped the market end slightly in the green.  However, the local market's advance was limited by the weakness in the major bourses abroad and short term profit takers.  Leading the decline in the markets abroad was the US, which slipped on weak economic data and a downbeat outlook from the US Federal Reserves.  

 

The Philippine main composite index ended this transition week at 3,426.95, a gain of 10.85 points or 0.32% week on week.  The broader All shares index also advanced by 9.19 points or 0.42% week on week. Despite the positive close of the main indices, all except for the industrial sub index ended in the red.  Leading the decline was the Holdings and Mining-oil sub indices.  The latter fell by 330.41 points or 3.60% week on week as Gold failed to rebound from its current depressed levels.  The Holdings sub index also slipped 0.81% as big cap holding firms like SM Investment Corp. (SM) and Ayala Corporation (AC) encountered profit taking.  Last week's gains were led primarily by the industrial stocks.  The industry sub sector was the lone sub index that ended up from last week. 

 

Industries were led by the strong gains of San Miguel Corporation (SMC A/B), Jollibee Foods Corporation (JFC) and the Manila Electric Company (MER).  San Miguel A and B shares registered weekly gains of 7.35% and 8.15% respectively.  The catalyst was the company's announcement of a special cash dividend of P5.00, which translated to an attractive dividend yield of at least 7.8%.  SMC also announced a one billion common shares offering at a price not lower than P75. The proceeds will be used for further investments and acquisitions of the holding firm.   Meanwhile, shares of MER advanced after the power firm announced that consolidated revenues grew by 35% in the first half.  The jump in safes was largely due to the allowed rate hike under the Performance-based Regulation (PBR). Distribution charges were hiked to P1.4917 this year after being increased to P1.227 last year. Lower system losses also contributed positively. After struggling with high system losses for a long time now, MER was able to push system losses to below the 8.5% cap set by the ERC. Also, the company decided to give out a cash dividend of P2.50 per share, approximately half of its first half EPS.

 

President Aquino's first State of the Nation (SONA) address did not have much of an effect on the local stock market last week.  The speech did have a negative tone but it did not shake the markets.  The President talked about things that most market participants already knew.  He revealed that 90% of the 2010 budget has already been spent by the past administration and only 10% remains.  On the positive side, President Aquino said that his administration will work on the rehabilitation of watersheds and dams and the protection of the environment, a peace process that is fully supported and a fast resolution to extra-judicial killings.  President Aquino also said that his government will be based on transparency and good governance and that corruption will eradicated.

 

The market seems to be stuck at a trading range of between 3,400 to 3,470.  However, this range could be broken either way next week by some potential market catalysts.   For next week, the main drivers for the market will be the release of second quarter corporate earnings results and the release of some key economic numbers.  Foremost among the economic data due is the release of 2nd quarter US Gross Domestic Product, where the consensus estimate is a 3% growth.   Investors will also be looking at the latest US ISM numbers and the local inflation data.  July inflation is expected to have inched up due to the effects of typhoon Basyang.  Meanwhile, the ISM numbers have been showing some signs of decline recently and another month of such could prove to be bearish for markets.  Notwithstanding, earnings could prove to be positive drivers for stocks, if they can sustain their strong performance.  Scheduled to release results next week are Globe Telecoms Inc. (GLO), Philippine Long Distance Telephone Co. (TEL), Ayala Land Inc. (ALI), Metro Pacific Investments Corp. (MPI) and the Aboitiz companies.