Market Mover?

The mining superstar, or, at least one of the superstars, Lepanto Mining, saw its shares drop from a high of 1.82 last August 24 to a low of 1.28 today ("A" shares).

What is disturbing is the volume of transaction in the past few days, especially when the stock saw heavy selling.

What's happening? Well, basically there are two rumors daw. I say daw because that's what I heard. So it's up to you if you want to take it with a grain of salt. First is that the company is looking at doing a stock right. Second, there will be a postponement of the announcement to be made by their foreign investor Gold Fields.

Then of course, there's that unloading of LC shares because it's not part of the PSEi anymore. This is a fact. So  index funds need to unload their LC to mimic the composition of the PSEi.

What happened in the past few days of course, forces traders to rethink their positions in LC. Today's recovery may just be a dead cat bounce. Investors, on the other hand, who truly believe that LC will become a profitable company one day may want to forget what has happened and just look to the future. Easy to say, I am sure.

There was also a columnist in the Inquirer who said that "According to unverified reports, the company is slated for a secondary offering—a development that could only be interpreted to mean that the principals of the company are taking their profits which, in turn, may send the message that no further initiatives are at hand to assure the continued growth of the company."

In my young experience with the stock market, stock rights usually negatively weigh on the shares of the company. It will take some time for its stock price to go up - - should it happen.

His article came out Monday. LC had a bloodbath the following days. Market mover?

Nah. Most likely it's the moves made by fund managers in anticipation of the Sept 12 shake up of the index. LC is being removed by then. If you're an index mutual fund with loads of LC, you can't sell those shares in just one day. I'm sure it is spread over numerous days.

San Miguel and Semirara will join the index, along with others who'll replace those that'll be exiting.

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It's interesting and also an encouraging sign to note that more and more Filipinos are looking for ways to build wealth (not just spend wealth). This is why paper investments have increased as well as hard assets like  condominiums. The next logical step will be to have even more forms of paper investments and an increase in home equity loans.

When you buy property, you can actually increase your net worth right away by taking out a home equity loan. Unfortunately though, this money is fake money because it's not yours. I use the word fake loosely, of course.

Americans used this fake money to buy goods they didn't need. Look at what happened to their economy now.

The continued launch of new projects is sure to increase property prices. Because logically, you can't sell new projects  at a cheaper price right? For one, prices of construction materials will go up as construction demand goes up. Further, the developer can't price its new projects lower than their old projects because that will be saying that their old projects are overvalued. They will also risk the ire of their investors.

Property, while generally safe, is not immune to price activity.  Prices do not fall on a straight line upwards. Time will come that it will plateau, or, actually go down.

I'm sure property advocates will not agree with me. hehe.

But ponder on this, if stocks are priced based on earnings, what or who determines the price of a property? The developer or the market? Ultimately it will be the market. So when the market is riddled with sellers, like the stock market, prices will go down.

Anyway, that's it for now.

Until then, appreciate the risk, then appreciate the capital!

Property: Still Good?

Last week I mentioned that I'd be discussing a bit about property investing. The one true thing about real estate - which most real estate agents won't say - is that there will always be real estate available. Although if you believe Lex Luthor, land is something people don't make more of.

True, but, as you may have seen by now, the gajillion condominiums being built everywhere in the metropolis (no pun intended), just goes to show that real estate will always be there. And the problem is, we don't know when the supply tips the scale of demand. Already, people have been saying that there would be a slowdown in the Philippine real property sector.

This has been evident in the Property Index of the Philippine Stock Exchange Index, as stock prices have fallen through the roof since January. Recently, there was a rally that started in late July up to the present. So far, based from a report I saw, 2008 2nd Quarter vs 2007 2nd Quarter has been generally positive for ALI, negative for VLL.

I don't have industry figures as public documents are hard to find unless they have already been reported in the news. I was able to find one though, published by the Philippine office of Colliers International. The report is a bit dated as it came out in April of this year.

Try reading this excerpt -
"Massive oversupply of residential condominium units in locations such as Fort Bonifacio where capital appreciation and rents may be subdued."

Condo sales may have picked up since April, but so has inflation. It doesn't take a rocket scientist to ask the fundamental question, "Don't you think there's just too many condos at The Fort?"

Let's try to make some guesstimates here -

Assuming there are about 20 projects being presold in the area, with each having an average height of 18 storeys. Then each story has about 12 units per floor. What do we get? Around 4,320 units that will altogether be turned over by 2010 or 2011.

It doesn't seem to be much until you ask yourself this question - who are the buyers of these condo units? End users or investors? If it's the latter, then I'd assume that the properties are for rent. There'd be 4000 units competing for tenants that rentals will probably be below what should be due. Apart from that, it is to my understanding that people who work in Makati and the Fort go home to Quezon City or Manila or other far away places. That's why the traffic is a killer during rush hour.

I'm not bashing the local property sector, but it pays to be wary of the direction the market is headed. I'm on the side that thinks we're headed into over supply territory. I do hope I am wrong.

The Fort in 2012.

Picture courtesy of this.