Property Sector The New Leader
Enter the don - the market has a new king.
I remain confident that the index will likely move out of the 2,050 – 2,150 trading range and will attempt to trade within the 2,300 – 2,600 range in the next 6 months. Note that the Peso/Dollar rate is a leading indicator for the stock market. Despite the current political situation, the Peso reached a 3 ½ year high to close at P51.36. This means that investors voted with their money by pouring in their dollars into the local market. Investors want stability and it seems that the strong arm tactics of GMA is getting their seal of approval.
So what sector will lead? My bet is that smart money will flow into the property sector. So enter the new king – Ayala Land (ALI – P11.50). ALI is the proxy for the property sector. In fact, the market has played little attention to the fact the share price of ALI has increased by 64% since July 2005.
Why am I bullish on the sector? First, property prices have remained where it was 10 years ago and roughly 70% off its peak in 1997. In Makati CBD, lot sells for P120,000.0 per sqm. or roughly US$2,300.0 based on P51.5 = US$1.0 exchange rate. In 1997, lots in the area cost around P400,000.0 per sqm. or roughly $15,000.0 based on P26.5 = US$1 exchange rate. It is a matter of time before property prices started creeping up. Second, property companies are the biggest beneficiaries of the country’s OFW sector. It is estimated that OFWs invested close to US$1.0 billion in new housing projects in the past 2 years. Thus, the sector offers an indirect play in the OFW economy. Third, the sector is cash rich. From a net debt position, most property companies have moved to net cash position. This gives them enough war chest to move ahead.
So, what will happen to the old king? Its time out for now for PLDT (TEL P1,780.0) as market seers – and even their CEO admitted during the analyst briefing that earnings growth will likely slow down in 2006. This should be another boost to property stocks as money will likely switch out of the telecommunications sector.
I remain confident that the index will likely move out of the 2,050 – 2,150 trading range and will attempt to trade within the 2,300 – 2,600 range in the next 6 months. Note that the Peso/Dollar rate is a leading indicator for the stock market. Despite the current political situation, the Peso reached a 3 ½ year high to close at P51.36. This means that investors voted with their money by pouring in their dollars into the local market. Investors want stability and it seems that the strong arm tactics of GMA is getting their seal of approval.
So what sector will lead? My bet is that smart money will flow into the property sector. So enter the new king – Ayala Land (ALI – P11.50). ALI is the proxy for the property sector. In fact, the market has played little attention to the fact the share price of ALI has increased by 64% since July 2005.
Why am I bullish on the sector? First, property prices have remained where it was 10 years ago and roughly 70% off its peak in 1997. In Makati CBD, lot sells for P120,000.0 per sqm. or roughly US$2,300.0 based on P51.5 = US$1.0 exchange rate. In 1997, lots in the area cost around P400,000.0 per sqm. or roughly $15,000.0 based on P26.5 = US$1 exchange rate. It is a matter of time before property prices started creeping up. Second, property companies are the biggest beneficiaries of the country’s OFW sector. It is estimated that OFWs invested close to US$1.0 billion in new housing projects in the past 2 years. Thus, the sector offers an indirect play in the OFW economy. Third, the sector is cash rich. From a net debt position, most property companies have moved to net cash position. This gives them enough war chest to move ahead.
So, what will happen to the old king? Its time out for now for PLDT (TEL P1,780.0) as market seers – and even their CEO admitted during the analyst briefing that earnings growth will likely slow down in 2006. This should be another boost to property stocks as money will likely switch out of the telecommunications sector.
posted by jack galt at
10:34 PM
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