Daily Market Script 2017

BOH DAILY MARKET SCRIPT
27 September 2017 8:15 AM
BULLISH SMALL BANKS: M&A THEME

Here’s what we know:
 We’re at the end of 3Q17 and we did say that we’re bullish small banks
going into 4Q17. We’ve done well trading RCB, PNB, and even EW in
1H17 and we believe the consolidation phase is almost done and we’ll
see the market rotate back into the small banks soon.
 Yesterday, we read a business news report saying that the Philippine

government is looking to sell its stake in United Coconut Planters Bank
(UCPB) following the decision of the Supreme Court (SC) to lift the
temporary restraining order (TRO) it placed on the bank in 2015. Two
years ago, there were a lot of firms who expressed interest in
purchasing the bank (minimum bid Php16.1bn) so it’s not hard to
imagine that the same parties will express interest now that the TRO has
been lifted.
 Having said that, our friends tell us that the larger banks like BDO, BPI,
and MBT may no longer be interested in UCPB despite the latter’s
extensive branch network and large AUM because of high NPLs and low
capital adequacy ratio (barely above the required ratio). However, it is
still a sizable mid-sized bank so it does make sense for other mid-size
banks including foreign banks who are looking to expand presence in
the Philippines will likely participate. Remember, we’ve been seeing
foreign banks partner up and paid high premiums for stakes in SECB,
BPI, and most recently EW just to have their foot in the Philippine
market.
 Under right market conditions, we believe that the UCPB auction can
spur M&A talks in mid-sized banks like RCB, CHIB, and PNB. Technically,
risk reward for all three have become extremely compelling after the
three month consolidation it’s had. Let’s see what 4Q17 brings us.
Copyright: BOH Society 2017

PH TECHS
 We start the week with a slightly bearish tone compared to last week’s
new high euphoria. The only sector keeping us afloat is conglo sector,
which is why the market is down just a little bit despite some steep sell-
offs in momentum-based trades.
 Overseas, we’re seeing signs that the conflict between the US and North
Korea is moving beyond rhetoric and tweets. Reports came across the
wire saying that the US sent over a wave of bombers and fighter jets
over the eastern waters of North Korea in a show of force after Donald
Trump’s speech at the United Nation. In response, Rocket Man Kim-
Jong-Un called the Donald a ‘dotard’ and ‘mentally deranged’ and
vowed to get even. We’re seeing some flight to safety.
 Locally, worst hit is the industrial sector (-2.4%) followed by service (-

1.7%) and property (-1.5%). Let me focus on services for now since this
is where I see the most downside risk from. 2GO slid -6.4% over the
past two days. MRP slid -6.3% on the back of a failed run above 9.00
and there is risk of more downside if the company raises cash to fund
local expansion. BLOOM slumped -4.6% and there’s a good chance it’ll
underperform further in 4Q17 following Razon’s share sale. The selloff
in service pushed PGOLD down -4.2% this week, which isn’t bad but still
worth monitoring given the new high breakout it had last week.
 To add to the bearish tone, the property sector is succumbing to the

bearish wedge structure we discussed last week. FLI is down -6.0% the
past two days and is facing its first critical test of support after rallying
strongly last week.
 On the brighter side, oil prices broke out overnight with the WTI
moving past US$51 per barrel for the first time since May. With luck, our
heavy
Copyright: BOHoil exposure
Society 2017 in BOHMOM will continue to benefit the portfolio
and help us through the rough patch as we roll onto 4Q17!
Bull Market in Mining (& Oil) in 2018?

 Investors have stayed away from mining-related names the past three
years because the industry has been beset by all sorts of regulatory
risks. At first, it was just the national government demanding a larger
share of revenues from mining companies. But because global
commodity prices plunged as a result of slowing growth, the issue
became a non-starter as mining companies scaled down and braced for
the long grind. Mixed opinion prevailed amongst the speculative
community when President Duterte appointed Gina Lopez as the DENR
secretary. Investors further decreased positioning despite recovery in
global commodity prices. And even when Gina Lopez was replaced by
Roy Cimatu, we saw small changes in investor positioning with sceptics
saying that the administration was dead serious about heavily
regulating the mining industry.
 We didn’t buy into the narrative. We’ve repeatedly argued that Duterte
was a friend to the mining industry and that perceptions of regulatory
risks will all go away once global commodity prices (which has been
recovering since November 2016) broke above levels where operating
leverage would start to kick in. For nickel miners, the level is US$12,000,
for copper miners it’s US$3.75, and for gold miners it’s US$1,500. But
more than just profitability, we believe we’re also seeing a change in
narrative. The Chamber of Mines of the Philippines, for example, vowed
to clamp down on irresponsible miners, which we believe can eventually
lead to industry consolidation and adoption of global best practices.
 We’re bullish nickel and copper this year and next year we’re bullish
gold and oil. Our top picks are NIKL, AT, PX, PCOR and PXP. Our dark
horse trade is AGF. AGF is a holding company whose secondary purpose
is mining, extracting, and smelting of mineral ores and the key catalyst
here will be asset infusion of mining related businesses by the
15 Aug 2017 9:15 AM
PH TECHS
 The market has mixed expectations going into the Philippines GDP
report on Thursday. The government is suggesting that we probably
grew between 6.8-7.2%, which should take us close to their 7%
projection this year, better than the 6.4% print in the first quarter. Credit
Suisse, on the other hand, cut forecast to 6% from 6.4% and Standard
Chartered revised growth to 6.5% from 6.8% both on account of weak
investment growth. Anything between 6.4% and 6.8% will still make the
Philippines one of the fastest growing economies in the region but
unless we print more than 7.2% the risk is skewed toward a
disappointment in our view. If the market prints a 7% growth, we would
use any jump above 8000 (all the way to 8300) to increase cash levels.
 While we struggle to reconcile the resiliency of the market to stay near

8,000 with our models, there is a high confidence that a push above
8,100 will be brief and likely to be selective. Far more important to
observe than any breakout from hereon is the quality of names that
lead out on the breakout. Over the past two days, index names like
SECB, JFC, SCC, URC and TEL have led out while FGEN, AEV, MPI, and
ICT dragged. Of the five leaders, we only like SCC. We believe that SECB
and JFC have limited upside whereas URC and TEL are just rebounding
off oversold levels but are still generally in a bearish trend.
 Far more important than the selective strength in our market is whether
foreigners will continue to buy into our market. Over the past 65 days,
foreigners have net bought Php38.5 billion and it would take another
Php30 billion plus net portfolio inflows to get us above 8,100-8,300.
Volume turnover has shrunk to Php6.6 billion the past 20 days and only
a sustained run of Php8.5 billion will allow us to break the top end of
range.
Copyright:
In sum, the 2017
BOH Society near-term case for moving into cash remains intact and we
would fade any short-covering rally on Thursday if the market rallies.
BOH FLASH NOTES
03 August 2017 9:15 AM
EDC Tender Offer Disclosure

 This morning Energy Development Corporation disclosed that it
received notice from Philippines Renewable Energy Holdings that it is
tendering an offer to acquire 6.6 million to 8.9 million common shares
of the company. The offer represents around 31.7% of the total
outstanding voting shares of EDC with the tender offer price pegged at
Php7.25 per share, which is a 20% premium to yesterday’s closing price.
The tender offer is part of an agreement signed by Philippines
Renewable Energy Holdings Corporation with First Gen Corp and its
subsidiaries.
 Trading for EDC has been suspended in light of the disclosure to give
the investing public time to digest the development.
Take away:
 EDC investors will be able to pocket a 20% plus return from the tender
offer at no market risk. Right now, the market is speculating that EDC
will be delisted once the tender offer has been completed. However,
our friends tell us this isn’t likely since the offer to buy shares will still
leave some 12% public float listed in the exchange so it’s highly unlikely
it will be delisted. In our view, whether it’s going to be delisted or not,
the correct strategy is to take the offer and run with your 20%.
 The next question is, if it’s not going to be delisted, will EDC still be a
part of the PCOMP Index? There is talk that it might be removed to give
way for names like DD and RRHI, which will broaden sectoral
representation of the PCOMP Index. We have no way to know how this
will play out.
 Again, the correct play is here is to take the offer and just shift to a
faster
Copyright: BOHmoving
Society 2017horse.
28 July 2017 9:15 AM
PH TECHS
 Mahirap maging masyadong maingat ngayong lagpas 8,000 na ang
merkado. At most, dapat i-angat na natin a market stop loss natin from
7787 to 7840 or even 7985. Yung property sector pa rin ang pinaka
malakas na sector pero di na rin nahuhuli yung mga conglos at mining
sector natin. Nitong nakaraan na limang araw, SCC, LTG, and MEG ang
pinaka malalakas na mga index na pangalan. Sinundan ito ng SECB,
RLC, MER, AEV, and AC. Dito sa mga nabanggit kong ito, tila si SCC at
LTG yung may malaking upside pa base sa kanilang technicals.
 Nagulat ako sa lakas ni MEG pero hangga’t kaya niya manatili above
4.80, dapat kaya nya pang umakyat patunggong 5.60 to 6.29 area.
Kapuna puna rin ang biglang pag lakas ni SECB na inakala kong tapos
na. Pero imbis kasi na malalag sya, nag sideways lang sya muna at
mukhang nag-hahanda na sa pag bulusok para sa 2018. Ang usap
usapan din ngayong kay SECB ngayong nauuso ang mga haka-hakang
merger and acquisition ay sya rin pala pwedeng nag-hahanap ng
bangko na pwede nyang bilihin para palawakin ang kanyang negosyo.
Ang problema lang ayon sa ating mga kaibigan para sa lahat ng mga
bangko at this point ay yung mataas na hinihinging presyo ng
karamihan ng mga pwede nilang bilihin na mga bangko.
 Nitong nakaraang sampung taon, ang naging presyuhan para sa mga

nabiling bangko ay 2.0x P/B. Eto mismong si SECB nung binenta ng may
ari ang 20% stake nya sa bangko, binenta nya ito at 2.8x P/B. Ang basa
ko dapat mabuhay na ulit usap usapan para sa mga bangkong RCB, EW,
and PNB ngayong 3Q17. Pag wala pa rin tayong marinig, matutulak na
itong kwentong ito sa 2018.
BOH FLASH NOTE
15 July 2017 7:15 PM
WHAT ARE POGOS?

 POGOs or Philippine Offshore Gaming Operators are companies
operating online gaming services catering to people (excluding
Filipinos) outside the Philippines. These online gaming companies rely
extensively on the internet and offer online games of chance using
proprietary networks and software and/or program. The PAGCOR over
the past year has been promoting a regulatory framework that would
govern POGOs and have been busy granting online gaming operators
license locally. Under the new framework, POGOs will no longer be
confined to operate in economic zones as was practiced in the past. We
understand that PAGCOR is targeting two segments in this potentially
multi-billion dollars a year industry: e-casino and sports betting.
 At the moment, PAGCOR has already issued 44 POGO licenses. Majority

of those already operating offer e-casino games through a streamed
live dealer set-up or random number (RNG)-based games. The balance
are into sports betting, which allows real money gambling on the
outcome of sports events such as basketball, football, MMA, and the
likes. Off-hand, it would seem that the emergence of POGOs could pose
a threat to integrated resorts like Solaire, Melco Crown, and Resorts
World but PAGCOR believes that the risks are minimal given
differentiated market segments.
 Aside from online gaming, the new regulatory framework also opens up
a lot of opportunities for the BPO segment. One indirect beneficiary
have been property companies that host the POGO as well as their
partner BPO services providers. We understand that POGOs now occupy
more than 400 different nationwide. Anecdotally, we understand that an
entire building in the MOA area is occupied by a POGO locator who is
now in talks to acquire two buildings in the Alabang area. We suspect
this trend will persist so we’re looking at property companies as an
indirect way of riding this bullish trend in online gaming.
10 July 2017 9:15 AM
Banks to continue leading the way

 A lot has changed since we expressed concern over large banks. While
we correctly guided everyone into the monster trades in small banks,
large banks never corrected the way we expected. Instead, banks like
BPI, BDO, and MBT continued to trade near the top end of their
respective ranges and consolidated throughout 2Q17. If the top proxy
bank in 1H17 was BPI, we’re now seeing a noticeable shift from BPI to
MBT with MBT playing catch up and looking set to brake the top end of
the range. Year-to-date, the banking sector is up +18.4% and is the
second best performing sector in the Philippine stock market.
 The shift in leadership to is a very good development since it gives legs

to the sector’s breakout attempt and complements the heavy lifting
being done by small banks. Our high conviction pick RCB (+77.6%) is
still the best performing bank this year but EW (+72.6%) is a very close
second and looks set to challenge it for the top spot in the small bank
space. At this point, we prefer to start locking-in some gains in EW and
rotate them into a laggard like PNB (+23.5%). While we remain
convinced that EW and RCB will continue to move strongly this year, we
believe that it’ll have to consolidate some of its YTD gains before it
starts outperforming again in 4Q17.
 By our time estimate, PNB will be in everyone’s radar again by end of

August. Just like RCB, PNB will be an event driven trade. Ideally, we
prefer it below 66.17 but given liquidity has begun to thin out so it
might not be easy to get it at ideal levels anymore. In any case, it can’t
runaway from us as long as it’s below 68.00. Let’s track this trade and
see if we can shift some of our RCB and EW exposure into this laggard
trade.
Copyright: BOHWe remain
Society 2017 convinced that banks will continue to lead the way.
03 July 2017 9:15 AM
2Q17 Review and What to Expect in 3Q17

 Picking winners is all about identifying which sectors and names are
strong and avoiding weak ones. So when you do top-down analysis,
start with analyzing sector indices first and then drill down to
component parts. You allocate more to the strongest names while
leaving less capital to weaker names. We have a momentum algorithm
in the DTR sheet in our Black Box file that can help you do this
consistently.
 Through Q2, property stocks played catch up with the rest of the broad
market with each minor pullback met by strong buying activity. While
the Service sector continued to be the leader this year thanks to the
impressive strength shown by telcos and gaming. The financial sector is
the only sector trading above the three year market range and we
believe it may still have legs as the M&A theme we covered since 1Q17
can come alive again this 3Q17. Maybe its wishful thinking on our part
that the M&A bug results in a broad industry consolidation but we’ve
seen it happen in the early 2000 so it’s not a far stretch for it to happen
again. As for the broader market, we see more downside than up even
though it’s still possible to see the market test 8,300 first before we see
7,500 but we cannot ignore how the PCOMP Index has succumbed to
profit taking each time it tests 8,000.
 Volatility across all sector indices are at their lowest since 2005. We
believe that we’re setting up for a really big move from 3Q17 and
beyond. Whether the big move comes after a market correction, we
don’t really know. We have currently raised cash from our June equity
sale to target any weakness that develops in PH stocks throughout
3Q17.
Copyright: BOHWe’re even looking to buy miners on extreme oversold readings.
Society 2017
30 June 2017 9:00 AM
PH TECHS
 Overnight we saw a huge spike in volatility across developed market
equities, which affirms our defensive stance not just on PH market but
across the emerging market asset class. Initial jitters were triggered by
oil and US treasuries volatility over but we are increasingly worried
about monetary policy makers in the US and Europe since both have
continued their hawkish rhetoric despite slowing growth data. Locally,
market participants are confused about what’s driving the USD/PHP
higher.
 It’s not US dollar strength since the DXY Index has been falling straight
down the past three weeks. It can’t be just hot money flow moving out
since we haven’t seen huge foreign selling in our equity market. If
anything, foreign buying helped keep the market afloat and near 8,000
this June. Could it be remittance slowing despite May and June being
historically strong months for remittances? I don’t know. What we do
know is that PH stocks can’t rally higher with the Dollar-Peso breaking
Php50.00 and seemingly set to move higher. It just doesn’t work that
way.
 In any case, yesterday was the first time in a long-time we saw people
panic. While there were some names that bucked the panic, we did see
profit taking in known high fliers. Early morning gains wiped out in key
names as soon as we broke below 7,800. Our own BRN was one of the
worst performers after stops got triggered on the break below 1.45.
BRN sellers hit bids all the way to 1.30 before it settled into a range
between 1.30 and 1.38. BRN will have to hold 1.31 from hereon to avert
sliding to 1.24 next. We estimate it’ll take at least two weeks to repair
the BOH
Copyright: damage
Society 2017and only if it can hold support above 1.24/1.31. We’ll
continue to track the range transition in this trade.
29 June 2017 9:00 AM
PH TECHS
 Risk sentiment over PH stocks have been shaky the past two weeks with
most large cap names sliding as it tracked broad risk-off tone in asset
markets. To some extent, the global macro environment is to blame
with monetary policy turning hawkish at a time when growth data was
starting to decelerate again. But like we mentioned yesterday, the data
calendar is empty so we don’t have any fundamental catalyst that can
push prices further down from near-term oversold readings. You see,
for bears to push prices lower below support levels, it can’t just be a
technical event. Institutional investors rarely want to be the first one out
and risk looking silly when the sun rises all shiny the next day or the day
after that. This is why we prefer to sell green and not red.
 So what’s working? We still have a few high fliers like PERC, SSI, V, and
STI. I don’t like PERC since it’s already at the top end of the range. SSI
can still make one last push to 4.29 before it needs to start
consolidating gains. STI will similarly encounter stiff resistance between
1.59 and 1.70 so do trail stops here already. And no one really trades or
takes V seriously outside Wealth Securities. Instead of these high fliers, I
would like us to focus on names that are starting to reverse.
 Our Xurpas trade looks extremely attractive and as long as it stays

above 8.35 I believe it’ll be okay. I am similarly interested to see what’s
happening in TAPET. TAPET is still relatively illiquid but I believe the
worst is behind it. I’ll only take it seriously once it gets above 3.10.
MRSGI is a buy dips trade between 4.46 and 4.70. Right now we’re
seeing sellers between 4.88 and 5.00 so we can still hope to buy MRSGI
cheap. Finally, I mentioned that nickel miners were starting to come
alive.BOHI Society
Copyright: remain 2017 suspicious because global nickel prices are still below
US$10,000 but I intend to watch NIKL and FNI very closely this 3Q17.
28 June 2017 9:30 AM
VOLATILITY IS DOWN, BIG MOVE AHEAD

 US markets were down overnight as they tracked broad weakness in
Europe and in emerging markets. Unfortunately, there’s little on the
data calendar that can give us a fundamental catalyst to drive prices
lower from near-term oversold readings. We know that the US dollar
has continued to weaken, which in turn has allowed oil to stabilize a bit.
We understand that iron ore is breaking out higher and copper is
attempting to transition to a higher range. The only dog in the
commodities space relevant to us is nickel but believe this too has
reached a near-term bottom.
 For our market, all we know is that RISK-REWARD isn’t attractive. We

know that large caps have slowly sold-off the past five days. We’re
seeing some really weird names come alive like PERC, IRC, and CIC to
name a few. And in terms of themes, our consumer retail theme has
rallied strong the past three weeks are nearing overbought levels
already. We believe that semicons will need to consolidate a little bit
more so we’ll have to be patient before we buy back. Gaming to us is
dead and we believe any further slide will trigger trail stops already. We
note that previous high fliers like 2GO, MRC and ALCO have similarly
topped out and a sell-off in these trades won’t be good for market
sentiment.
 In any case, we’ve completed six months of trading and I don’t expect
there to be any major window dressing going into month end. I will
continue to trade this market selectively but I will be even more
defensive if I see the PCOMP Index break below 7835 in July. Until then,
let’s continue to trade small. I remain convinced that we’re going to get
a very
Copyright: BOHBIG MOVE
Society 2017 soon.
BOH GUIDE
22 May 2017 10:30 PM
MOMENTUM-DRIVEN WEIGHTING
 We’ve been teaching you about Trading by Portfolio the past five
months and I believe most of you see the benefits of this model-driven
approach. The reason our Trading by Portfolio approach has been
successful is because of the systematic way we select stocks and our
portfolio optimization process that assigns weights based on
MOMENTUM. You see, stock selection is just one part of the equation.
While others think the other part is market timing, in my experience,
WEIGHT ALLOCATION is the more important part.
 In all my years of working with retail, I’ve realized that it’s not enough to
just provide them with stock picks. If you just give them five stocks from
a selection of three hundred, retail investors have this uncanny way of
picking out the absolute worst stock of the five choices. To remedy this,
we not only need to tell them which names to trade, you also need to
show them a systematic way of assigning weights. It’s either that or we
just insist that they apply EQUAL WEIGHTS just to mitigate the risks.
 A MOMENTUM-DRIVEN WEIGHTING model constructs a portfolio

based on how attractive the stocks are from a trend perspective. The
model tells us in very clear terms how to properly position size the
trade. Since we’re normally dealing with retail portfolios, “liquidity” isn’t
that big an issue so we don’t need to put a constrain on how large the
largest position can be. Instead, we have rules of thumb that prescribe
the number of stocks one should hold. This should address the issue on
the maximum size limit one should have for a single position.
 If you haven’t had a chance to use our MOMENTUM-DRIVEN

WEIGHTING MODEL, you can find the table on the DTR sheet in the
BLACK BOX file we publish every day. Do check it out.
BOH QUANT REPORT
15 May 2017 2:00 AM
BIGGEST RANK SCORE MOVERS – 1 MONTH

Rank Score Rank Score RELEAMM RELEAMM
Symbol Quintile last Quintile this
last month this month
month month
2GO 1.788 1.926 5 5
MRC 1.683 1.775 5 5
WPI 1.561 1.614 5 5
SCC 1.565 1.618 5 5
RCB 1.560 1.611 5 5
TFHI 1.644 1.693 5 5
PNX 1.579 1.625 5 5
MCP 1.663 1.707 5 5
IMI 1.590 1.631 5 5
CIC 1.550 1.585 5 5
BLOOM 1.549 1.583 5 5
ICT 1.540 1.571 5 5
AGI 1.382 1.407 4 4
CHI 1.387 1.413 4 4
GERI 1.321 1.344 3 3
IDC 1.379 1.403 4 4
UBP 1.533 1.555 5 5

11 May 2017 9:30 AM
STILL BULLISH OIL

 We have not waivered on our bullish oil thesis despite the inability to
break the top end of range at US$53/bbl and the three month slide. Our
view here is that commercial crude and product stocks will be drawn
down faster than expected and bring down global supply. We are
watching US data very closely and we’re encouraged by the overall
draw in the US, which saw Cushing drop 0.4Mb. We also saw crude
supply go down due to lower imports. Unfortunately we’re seeing some
weakness in crude demand. The real issue that’s keeping oil prices
capped is that stocks remain at 5 year highs. We’ll continue to monitor
and track supply and demand for oil given our bullish outlook for the
market.
 Our main bets are still PNX and PCOR but we’re also interested in
what’s happening in PPC. The only issue we have about this trade is
liquidity but if we see sustained volume buzzes on this trade, we’d be
more than happy to take it. For now, we’ll be observing this over the
next three weeks to see if we can get a set up. This trade is similar to
BSC in that it’s probably going to be event driven so it’ll help to watch
for signs on newsflow to help guide us on timing. As always, we prefer
to use technicals than stories so don’t trade the name without the set
up.
 Again, PNX is our top pick in this space but it’ll need to consolidate and
trade broadly between 8.80 and 10.00 for now. Our bet on PCOR is still
a bet for 2H17 so while it’s done well recently, it’s still the worst
performing index name to date so I don’t expect it to do anything
anymore for us this 1H17. Best case, it’s ranged bound between 9.07
and BOH
Copyright: 10.10.
Society But
2017 in 2H17, we have high hopes it’ll run back to 11 to 12
area.
08 May 2017 9:30 AM
PH TECHS
 The Philippine stock market out-performed our expectations this 2017
and is expected to remain solid in 2018. The services sector has been
the biggest winner so far this year followed by the banking sector at
+25% and +16% YTD, respectively. The two sectors should help build a
long-term base for Philippine stocks, though a full-on resumption of a
bull market is a story for 2018 more than 2017.
 For instance, the banks will probably have to take the leadership role
from services with a mergers and acquisitions theme as a subtext. We
expect momentum in gaming and telcos to start slowing down in 3Q17
but with an upward bias. If the market is really strong, we’ll have to see
a broader rally in the property sector, which up until now has been
limited to MEG, SMPH and ALI. Our top pick here is still SMPH and fully
expect it to become the first Php1 trillion company in the Philippines
before the end of 2Q17. But the real top stock in the property sector is
still BEL, which is still on track to hit 5.04/5.56 following recent breakout.
 Will small property names play catch, I’m sure they will. Among the
strange ones, I like RLT the best. I’m interested in IDC, CDC, CHI, and
PRMX. I’m still bullish SLI but it hasn’t been able to differentiate itself
enough. We recently added VLL to #bohlowvol, pero pasaway talaga
sya eh. Haiz.
 The PSEi is now at the top end of our trading range so taking some
profits make sense. If you prefer to just trail stop, the market trail stop
now is at 7700 first, 7564 last.
04 May 2017 8:30 AM
Sec. Gina Lopez out

 Yesterday the Commission on Appointment announced with finality that
it was rejecting the appointment of DENR Secretary Gina Lopez. To
some extent it is a major event given Sec. Lopez’s heavy handed
approach towards the mining sector. With her own, there’s hope that
we can have a more balanced conversation about responsible mining in
the Philippines and the developmental role that local miners can play in
the localities they operate. If you’ll recall, the mining sector has been in
a bear market since the Aquino administration issued Executive Order
No. 79, which sought to tighten environmental standards in mining and
suspended issuances of new mineral agreements until new legislation
on revenue sharing schemes was enacted.
 At the margin, with Gina Lopez out, there is now room for open
dialogue. For mining stocks, this event caps any further downside risk.
The PMINI Index rallied +2.7% in yesterday’s session but closed off
highs despite printing a new 52-week high as investors start asking,
what next. We understand that Undersecretary for Mining Mario Jacinto
is the most likely candidate for the DENR top position. He is a career
geologist and we’ve been told that he is an expert in his field and a
fairly level headed person who can bring about the necessary changes
in the mining sector.
 But even with a new DENR head, there are still hurdles and potential
catalysts. How fast can they undo Gina Lopez’s regulatory issuances?
These are populist measures so it’s highly unlikely they’ll be able to do it
quickly. Global commodity prices for nickel pig iron is also depressed
because of slowing demand from China. Will the trend persist? For now,
we’ve
Copyright: BOHcapped
Society 2017the downside risk but upside remains uncertain. Our best
bet is to just trade the range.
BOH TRADE IDEA
03 May 2017 9:00 AM
BUY X, TARGET 13.61

Rationale: Price correction implies better risk-reward
 Bottoming out processes are never easy, which is why we always keep
you trading stocks with high quality momentum. We’ve kept you
trading leader stocks and have shown you that you can sleep better
trading leader names. However, when leader stocks become stretched,
the market tends to revisit high quality laggards especially when the
market expects near-term consolidation or senses factors that can
reverse the trend for high fliers.
 Xurpas is up +10.37% YTD and is in a price correction ever since it

topped out at 10.84. We believe it offers best value on a three to six
months perspective as it is now approaching start of year level since
bottoming out last March.
 Trading bottom pickers is advantageous if the price correction is orderly

with volatility contained below 30%/40%. According to our estimate,
we’re looking at a conservative reward to risk ratio of 15.5x-25.7x. What
this means is we’re playing for a chance to win 40%-66% versus risking
anywhere between 3%-10% downside.
Expression: Buy X as close to 8.21; stop below 8.00.

 Xurpas is pivoting this 2017 with support at 8.21 and line in sand at
8.00. The bears are in control of the 2Q17 quarterly range with
resistance at 9.85. What this means is, it won’t runaway from us as long
as it’s below 9.85. Bottom pickers should start watching closely once
below 8.76.
 Alternatively, those who aren’t as well-versed bottom picking, your best

bet is to just wait for price to get back above 9.85.
BOH PROCESS GUIDE
26 April 2017 9:00 AM
Our Thought Process In Portfolio Design

 Let me just say that I do not have a monopoly on good ideas (bad ideas, yes,
but good ones, no). At our core, BOH is and will forever be DIY (do-it-
yourself) and our models and guidance have been designed to help you
become the best trader version of you that you can be. However, DIY for
some can be scary. For them, we’ve developed our model portfolios to help
shorten the learning curve while at the same time get them some profits.
 Still, there can be some challenges to cloning / replicating our model

portfolios. Obviously, there can be some instances, where despite our
trading notes, you still feel the need to question the hypothesis, as you
should. You see, when we build our model portfolios, we are bounded by
many factors including:
 Are our stock picks executable in practice (Are they sufficiently liquid?)
 Does the interaction within the set of names we select make sense
(issue of portfolio design)?
 Would the models be robust (withstand normal daily volatility /
outperform benchmark index)?
 Can clients handle the volatility of the trade?
 Some of these questions are easier to answer than others. For instance, our
model portfolios have been created with specific purposes in mind. We
know the #bohmom will do better than the #bohlowvol and that that the
#bohlowvol should do better than the PCOMP Index. Alternative strategies
can definitely do better than our models but that requires us to take on
more risk for those of you who are still trying to get your feet wet trading
the market.
 As all of you become more experienced, we will be able to explore how

much more
Copyright: we
BOH Society can push portfolio design to generate alpha for us. After all,
2017
we’re just getting started.

20 April 2017 8:30 AM
STILL BEARISH ON PH STOCKS

 We reiterate our view that the correct strategy following the April
breakout from the first quarter’s range consolidation is to sell Philippine
stocks since the rally is more a laggard rotation in global equity markets
than a sign of a resumption in leadership.
 First, Philippine stocks lagged developed and emerging markets in

1Q17. We saw US, UK, Germany and the likes of South Korea, India, and
Taiwan printing new 52-week highs while we were stuck in a tight
trading range. The disconnect was rough but then the leaders began to
lose steam, and this eventually allowed money flow to rotate into
laggard markets. But as the slide in this year’s global equity leaders
deepen, it becomes harder to sustain our own run on short covering
alone. Over the past three days foreigners started to unwind longs after
aggressively buying our market two weeks ago. Technically, there are
gap supports all the way to 7365 so we’re not going to crash all of a
sudden. However, below 7323, PH stock weakness will likely accelerate.
Our resident Elliotician Jojo Gaston sees the terminal price from a
correction at 6700.
 Second, we’ve benefited from strong runs from twin runs in Financials
and Services. Conglos were supportive but property stocks never quite
hit their stride. To make matters worse, we may have overestimated the
ability of industrials to fix itself up. You see, some of our top picks like
PNX, PF, CNPF, IMI, PSPC, and PCOR are industrial names but with large
cap names like URC, MER, and JFC stuck in a range and looking bearish,
we can’t expect much from the industrial sector.
 Lastly, it’ll be earnings season soon. Banks will likely report first. Given
YTD performance +13.2%, banks feel like they’re priced to perfection.
Telcos
Copyright: BOH too
Societywill
2017 be under a huge microscope after their strong run this
year.
19 April 2017 9:30 AM
PH TECHS
 Global equity markets slid for a second straight day thanks to mounting
geopolitical fears. All eyes are now on the French election, which after
the first round shows a very tight race. The risk-off mood is evident in
the FX market with the yen benefiting from a flight to safety. The US
10y yield also broke below its 2.30% support and closed overnight at
2.18%. We also noted that Janet Yellen’s speech at the start of the week
played no bearing in the market. We still don’t have an idea of how
future rate hikes will go other than they intend to hike two to three
more times this year.
 For Philippine stocks, the banking sector is on a five day slide despite
the huge up move in RCB. Banks lead the down move across major
sectors with CHIB and MBT among the worst hit. We like CHIB. We don’t
like MBT. Good news is, our preferred large bank exposure BPI was
sparred from the correction and is still trading near highs. Services,
which has been a very good engine YTD, has shown signs of stalling. In
fact, leader stock in the gaming space MCP is down -5.8% over the past
five days and looks to be headed lower. We’re seeing similar weakness
in BLOOM and PLC so we prefer to stay defensive. There’s just no sense
trying to buy the tight consolidation at the top end of the range with
downside risk is this wide.
 In any case, while the bulls control the quarterly range on the PCOMP,
we need to understand that the strength we’ve had since the start of
April was a result of a rotation out of leader developed markets and
emerging markets and into laggard emerging markets like the
Philippines. Unless we see foreigners cover shorts on down days, it’s
moreBOHlikely
Copyright: Society that
2017 we’ll test support at 7400 area than rally to 7800.
18 April 2017 9:30 AM
PH TECHS
 Philippine stocks are off to a slow start this week following the strong
run we’ve had so far since the start of April. Volume is down and
foreigners have stopped covering their shorts. This gives us room to
breath a little bit and contemplate what to do next. As far as we’re
concerned, all sectors are still locked inside their respective trading
ranges. Financials, which two weeks ago seemed like it was going to
break the top end of its four year range, is once again hesitating around
1876. The other engine this year has been the Service sector with
telcos, gaming, and transport helping buoy the overall market
sentiment. We remain sellers of gaming stocks at these levels. We’re
looking to trade telcos. We’re eager buyers of transports but at much
lower levels.
 Fundamentally, we know that passage of the Comprehensive Tax

Reform Program is a very important catalyst for the market. We
understand it failed to get past the Ways and Means Committee last
March and our contacts tell us that it might not pass before the June
target. There are just too many vested interest at play in the passage of
the tax reform program and that keeps uncertainties high over the
near-term. You see, non-passage of HB4774 could derail the national
government’s spending plans this year. It could mean less infra
spending, and since we’re coming from a high growth last year, could
be disastrous for growth this year. Alternatively, the national
government can push through with its planned spending with or
without the passage of new taxes but that option too could have
negative long term implications.
Copyright:
Technically, our sell range for the PCOMP is from 7547 to 7842. The
BOH Society 2017
bulls are still in control but a break below 7323 can tip scales.
BOH PROCESS GUIDE
14 April 2017 7:00 AM
The Path to Cloning a Model Portfolio



BOH TRADE IDEA
11 April 2017 7:30 AM
BUY CEB, INITIAL TARGET 127.24

Rationale: Pessimism overdone
 Cebu Pacific shares haven’t really recovered since topping out at 125.50
in August 2016. The stock slid for four straight months last year and
consolidated near range lows in the first quarter of this year. We
initiated our high conviction trade call on CEB last 16 January and the
share price is finally moving in our favor. We attribute the seven month
underperformance to a weak PHP versus the USD along with rising oil
prices (which inflate the fuel bill, making hedging ineffective) but we
believe that this is now largely priced in.
 Two key pieces of positive newsflow for CEB this week: an uptick in 3-
month forward booking and a better-than-expected tourist arrivals
from China. Forward booking for 2Q17 jumped +18% and this
translates to a slightly better number of booked seats compared to the
same period last year. We understand that the company is also adding
new planes to its fleet this year, which should increase overall seat
capacity, and allow CEB to cater to the growing number of tourists.
 The official DOT stat in 2016 estimates a total of 6 million tourist

arrivals. Last year, Chinese arrivals only accounted for a little over 10%
of tourists. This year Chinese tourists already account for 33% of the
2016 total. Just with the new Chinese tourists alone, we’ll likely see
arrivals hit 7.32 million this year or a 22% growth y-o-y.
Expression: Buy CEB between 94.12 and 102.25; stop

below 93.86.
 We believe that CEB is just a range trade this year but that it can be a
monster trade in 2018. Range resistance is at 118.50 but we think
127.24 is doable. The buy range is between 94.12 and 102.25 Stop
below
Copyright: BOH93.86.
Society 2017
10 April 2017 5:00 AM
PH TECHS
 With momentum in key developed and emerging markets stalling, PH
stocks finally showed some life this April. It helped that foreigners
started to net buy some Php8.37 billion over the past five days. Now if
we can sustain this pace for another week, foreigners will be net flat for
2017. The main beneficiaries of strong flows over the past four weeks
have been SM, SMPH, BPI, and AC. Flows were not completely one way
as foreigners net sold BDO, DNL, ALI, and RRHI over the same four week
period. We’ll have to sustain the strong flows over the next three weeks
to keep from sliding back towards 7282 area. Our trading range is 7282
to 7842.
 Year-to-date, the strongest performers are Services and Financials

followed by Conglos. Services like telcos and gaming still look like they
have upside so we’ll have to focus on this sector for the rest of April. On
the other hand, banks look a bit stretched and might consolidate in the
near-term but definitely worth trading on dips given proximity to the
top end of the range. Over the past five days, property stocks have
been trying to play catch up after underperforming the broad market
over the past six month. We remain suspicious of large cap property
stocks but for now they look tradeable.
 Abroad, there appears to be no major event risks on the horizon. Last

Friday, we did get a bad jobs report in the US with jobs growth slowing
to 1.52% from 1.65% but unless we see US stocks correct sharply, bad
data in the US should curiously be good for investors risk appetite. Bad
data only becomes problematic if it turns out that the Fed is on this
preset course to rate normalization. We keep hearing Fed speakers say
3 more rate hikes this year but the bond market seems to disagree.
Copyright:
The BOH market will only be open until Wednesday this week so we’ll have
Society 2017
plenty of time to rest and reassess what to trade next.
03 April 2017 7:00 AM
Oil is love…
 Global oil prices jumped +5% on the week, and puts a floor to an
otherwise rocky start this 2017. We reiterate our bullish call on oil this
year given our view that OPEC cuts will lead to continued rebalancing in
the global oil market despite rising US production. It’s very important
that OPEC rolls over production cuts in the second half otherwise
inventory figures could start ticking up again. We’ll get a better idea of
supply situation the oil market by end of April when US weekly stats
come out.
 Key oil stock plays for us are PNX, PXP, and PCOR. PNX and PXP are up
+9.1% and +7.4%, respectively over the past five days. PNX looks
stretched in the near-term but even if it dips we expect buyers to step
in. PXP is bullishly setting up and the key level to watch is 3.37. While
recovering oil prices can easily lift PXP to 3.90, we believe we can only
run back to top end of the range if we get positive news flow about
drilling operations at the Galoc-7 appraise well or maybe even joint
exploration talks again with China.
 Last but not least is PCOR which, just like PXP, will benefit from further
recovery in global oil prices. We remain bullish on this trade with a stop
below 8.82 but we prefer to take on the trade above 9.07 or even above
9.37 on the wedge breakout.
 PCOMP right now is still trading above 7282 and line of sand is 7212. If
we can stay above 7282 in April, we could retest 7403/7547. If not then
expect a test of 7050 first, 6954 next. We’re still just running on fumes
withBOH
Copyright: Services
Society 2017keeping the market afloat so be sure to trade selectively
and only names with liquidity.
BOH MODEL PORTFOLIO
02 April 2017 1:30 PM
Investing in Stocks with the Highest

Momentum Quality
Key Notes:
 Investing in PH stocks with the highest momentum quality is less riskier
than trading names without rhyme or reason. We have been trying to
convert all of you to this view the past 18 months and while we’ve seen
a lot converts into this style of trading, we still see a lot of pushback.
One of the key complaint about trading stocks with momentum is that
finding ideal entry points is more difficult than say stocks that are in a
range or even those that are in a downtrend. Majority of investors who
are trying to make the switch are too worried that the uptrend will end
only for them to see the trend persists and are left wondering when the
next pullback will happen.
 Since we launched our BOH MOMENTUM MODEL PORTFOLIO last 31

January 2017, the optimized portfolios have averaged +7.53% return,
which when annualized means that it’s on pace for a +46.6% return this
year. The portfolio lagged a bit this March after we removed majority of
the gaming exposure we had in February but big wins in names like
MRC and PNX have made up for the loss in gaming exposure. Our big
bet in NOW has similarly not paid-off the last three weeks (NOW even
dragged) but the equity curve is still trading near highs and looks set to
breakout higher this April.
 Just like in February, the equity curve is only being driven by a couple of
names in the portfolio. In an ideal world, you would like all names to
generate you positive returns. You’ll want to know which ones know will
benefit your portfolio before hand so that you can assign the highest
weights to those names. Clearly, we don’t live in an ideal world and
what we are saying is that you don’t need to. All you need to do is to
invest
Copyright: BOHin stocks
Society 2017 with the highest momentum quality regularly and all will
be well.
BOH TRADE IDEA
20 March 2017 8:30 AM
BUY PCOR, INITIAL TARGET 11.14

Rationale: OPEC cuts supportive of bullish oil outlook
 Our fundamental oil outlook through 2017 remains bullish despite the
recent price correction in oil. In November last year, OPEC agreed to
production cuts and we saw crude prices rise from US$40 to US$57 a
three month period. Last week’s oil market correction pulled prices
lower by 10-11% as market participants reacted adversely to rising US
crude inventories. But from what we understand, the supply overhang is
predominantly in the US and that this isn’t the case everywhere else.
 In Asia, for example, China and Japans’ crude and product inventories
have tightened and are expected to tighten further before the situation
normalizes in about six months. At some point, US oversupply will find
its way to Asia where demand is expected to pick up this year. In the
meantime, supply tightness will limit global oil prices downside from
hereon. We also see OPEC production cuts to accelerate since the
agreement only holds for 1H17. Having said that, the view for now is
that Saudi Arabia and OPEC will agree to another round of production
targets in 2H17.
 Our view is that crude oil price will move back above US$55 in 2Q17
and will likely hit US$60 in 3Q17 and US$64 by 4Q17.
Expression: Buy PCOR near 8.88/9.07; stop below 8.82

 Our preferred way to express our bullish oil call is through Phoenix
Petroleum but if liquidity is a concern for you, we believe Petron Corp.,
is a good alternative. PCOR’s earnings for 2016 beat market
expectations, so this should put a floor to the share price slide from the
start of the year.
 The buy range is between 8.81 and 9.34 but best if you buy near
8.88/9.07 area. Stop below 8.82.
31 March 2017 9:00 AM
PH TECHS
 PH market closed flat yesterday despite a strong recovery from
industrial firms with JFC rising +3.5% and EDC closing with a +1.2%
advance. Property companies dragged with weakness across key names
like RLC, MEG, ALI and SMPH. Momentum in services appears to be
stalling and can be a bit of a problem since it’s the lone leader sector at
this point. Specifically, telcos have already hit our sell zone target prices.
We remain of the view that gaming stocks are a sell.
 The good news is that we’re starting selective rotation into mining and
infrastructure names. So far FNI and MWIDE have stood out in these key
sectors. FNI approaching key resistance 2.86 to 3.15 so we’ll be
watching how it reacts to the supply trapped around this area. MWIDE
looks set to break top end of range. Best to just adjust stop there given
that everyone in that trade has the same cost structure given the
extended consolidation above 14.00.
 I am very excited about our bullish call for oil stocks since it just got a
boost after the WTI rallied back to above US$50/bbl overnight. I remain
convinced that oil stocks like PNX, PXP, PCOR, and even TAPET can do
well in 2Q17 if global crude oil continues to lift. PNX is trading above
the top end of our range. If it spikes towards 9.00 and up, we should
take some profits just to make sure we have room in our portfolio to
buy dips. We’re hiking our target price from 12.00 to 15.00 based on
our assessment of big picture technicals.
 Today is WLCON’s listing date. PCOMP Index support still at 7213.

Useless
Copyright: if below
BOH Society 2017 7176.
29 March 2017 9:30 AM
PH TECHS
 Overnight sentiment lifted ahead of Yellen’s low-key speech. Investors
have been worried about the failure of the healthcare bill in the US and
has taken the setback as a lost in confidence in the Trump presidency.
Treasury yields and the US dollar are off highs and investors took this
cue as risk on for equities. You know investors are becoming absurd
when they use one set of logic to push their bull market thesis and then
use the reverse logic to again push the same bull market thesis. Medyo
nag kakalokohan na eh.
 For now, the only thing I’m looking at is the health of our broad market.
While we’ve trade sideways the past five days, sentiment has been kept
afloat by strong surges in LTG, TEL, and GLO. These three are the same
three names that led since the start of the year so it comes as no
surprise that they’re pushing higher going into quarter end. Recall our
thesis about the leaders on the first 3 weeks being the ones to
outperform the market? For index stocks, it’s these three names.
 Of the three, GLO is the most efficiently trending name so we prefer

GLO over TEL. If you’re looking for exposure on index volatility, your
best bet is to trade LTG and ICT. I personally like ICT over LTG but I do
see the attractive ness of taking on LTG after it broke about the
midpoint of the trading range. EDC and SCC are good trades to choose
between if you’re looking for a quiet life. I prefer EDC because it has less
regulatory risk. I continue to like SMC but I would like it to have more
volatility. Medyo tulog na tulog si SMC eh.
Copyright:
PCOMP line2017
BOH Society in sand still at 7213. We recommend selling above 7400 if
given an opportunity.
BOH FLASH NOTE
13 March 2016 9:00 AM
ON WILCON DEPOT INC.’S IPO

 Wilcon Depot Inc., is scheduled to IPO on 23 March and will raise some
Php6.969-Php7.92 billion for this listing. The company has given an
indicative price range of Php5.00 to Php5.68 for the 1.384 billion shares
on offer. This will be an all primary shares issuance, which will be used
for store network expansion, debt repayment, and general corporate
purposes. The post IPO public float will be 34%, which we understand
will be wholly offered domestic investors only.
 Wilcon is a leader among large retailers in the home improvement

industry. According to its filling, the company is number 1 ranked in
terms of revenues in the large depot format and owns about 56% share
of the market. Closest competitors are Citihardware and COHCI, who
are key players in the home improvement and construction supplies
segment. The company services the middle-to-high-income
homeowners whose needs include new home construction, renovation,
repair and maintenance, home improvements and the likes.
 The company is planning to rollout 29 stores in the next 5 years and is

targeting an annual sales growth of 13-15%. Expansion will be geared
towards emerging urban areas in the VisMin region with the company
set to open 8 stores in 2017. At the moment, Wilcon has a total of 36
stores bulk of which is dispersed across NCR and Luzon. On average,
the company has historically opened 2-3 stores a year so there’s some
execution risk to their plan especially since the expansion is geared
towards VisMin area.
 We like Wilcon Depot because it will be the first pure play in the home
improvement. The only issue for now is valuation because if it offers it
at the max price of Php5.68, the company will need to close to nearly
double its net income growth from a 28% to 50% for PERs to be at par
with closest comparable PGOLD. Even with 8 new stores this 2017, we
BOH TRADE IDEA
09 March 2017 9:00 AM
BUY XURPAS, INITIAL TARGET 11.46

Rationale: Clouds over Xurpas growth horizon could lift
 Prior to hitting a low of 7.00 in February, Xurpas had been in a
downward spiral since August 2016. That’s in part because it was no
longer clear that the company could maintain its high growth trajectory.
It was also around this time when Xurpas acquired Art of Click, a
Singapore-based technology firm for Php2.12 billion, which investors
viewed as an expensive purchase in a highly competitive space. It used
proceeds from its Php2.5 billion top-up in April to fund the acquisition.
 We believe that once uncertainty over growth is out of the way,

investors will start to come back. We understand that the company’s
owners have taken salary cuts amid the changing market climate. It
partly addresses uncertainty over the bottom line and can potentially
get back investors’ confidence. We’re still waiting for 4Q16 numbers,
which should reflect that growth jitters are overblown. We also expect
the excitement over upcoming tech IPOs to overshadow longer term
issues in the near term.
 Finally, it looks like the big seller from the top-up placement has been
absorbed by the market. For now, the only sellers would be those who
bottomed picked the trade near 7 pesos.
Expression: Buy Xurpas near 8.76

 The immediate range is 8.21 to 9.32 with midpoint at 8.76. Stop below
8.00. If we get above 9.32, X should be able to make a run back to 10.30
at which point we expect profit takers to come out again.
Copyright:
Expect Xurpas
BOH Society 2017 to be in a range until end March. With luck, big move by
2Q17.
BOH FLASH NOTE
08 March 2017 8:00 AM
PLDT 2016 EARNINGS IN-LINE W/ STREET ESTIMATES

 Judging by yesterday’s price action in PLDT, it would seem that reported
earnings were in-line with expectations. The company reported
Php27.9bn income for 2016, meant that earnings fell 21% year-on-year.
If not for the Beacon last year, which netted the company Php7.7 billion,
earnings would have been much worse. The main drag still came from
the competitive landscape with the company losing out market share in
the mobile segment which included voice, SMS, and mobile data to
main competitor Globe Telecoms.
 A quick look at the revenue mix also shows that the company is
transitioning more and more to being a data service provider, which
could further cannibalize its SMS revenue stream. What this also means
is that the company will continue to have to spend for building its data
network to improve services for home and corporate broadband
segments.
 Curiously, while the company did guide for increasing the revenue mix
for its fixed line segment, the company did not mention strategy for its
recently acquired 700 Mhz spectrum network. The acquired asset was
touted as the boost needed to push wireless services further. We
understand that Globe is already using the 700 MHz mobile spectrum.
Could the rumors be true that existing PLDT technology is not
compatible with said spectrum network?
 Anyway, PLDT traded between 1430 and 1482 and closed down -1.1%
at 1454. Fundamentally, we know fair value has been slashed
aggressively the past nine months so things are probably priced in.
What this also means is that moving forward all eyes will be on 1Q17
earnings,
Copyright: which
BOH Society 2017 buys the company some time. Technically, stock is only
useless below 1292.

BOH TRADE IDEA
07 March 2017 1:00 AM
BUY SEMICONS IMI AND PSPC, TARGET 8.03 AND 2.39

Rationale: Growth in automotive and industrial markets
 A quick look at semicon data this year shows that January sales beat
consensus estimates thanks to a pick-up in Chinese demand, which is
expected to persist throughout 1H17. While we do expect sales to
slowdown in the near-term because of seasonality, we do have a long-
term bullish view on the sector. We believe semicons will outperform
over the next three years thanks to significant growth expected from
the automotive and industrial markets.
 We turned bullish semicon industry mid 2016 when we spotted a bullish

reversal in trend in the US dollar. Last year, we traded Cirtek Holdings
(TECH) first but preferred Integrated Micro-Electronics (IMI) as our
sector proxy. We also argued that Phoenix Semiconductor Philippines
Corp. (PSPC) would be a key trade for 2017 and so far it has moved
according to expectation.
Expression: Now is a good time to buy semicons

 IMI trading near midpoint of range on contracting volatility. It’s
always a good idea to buy when prices are consolidating and support
around key levels than chasing momentum. While we don’t expect IMI
to runaway this March, it could already be setting up for a push next
month. We also observed that foreigners are always at support levels
buying weak handed traders.
 PSPC has retraced after hitting our target sell level. PSPC is the
sector leader YTD and it has dipped near our buy levels. It’s more
volatile than IMI but it has shown better liquidity during up days.
 TECH is the dark horse of the sector. TECH is a jockey driven stock
and it can be illiquid at times. Timing this trade can be extremely
frustrating but you can’t argue against being in the right sector at the
BOH TECHNICAL STRATEGY
26 February 2017 4:33 PM
A MARKET CORRECTION IS COMING

 Philippine stocks have traded inside a tight 200 plus point range over
the past two months but the PCOMP Index is up +6.1% YTD. After a
strong first week when the market rallied from 6874 to 7400 when
market participants came back from their Christmas break, the market
has just churned with most index gains printed by last year’s laggards
and a couple of non-crowded trades. Names like GLO (+21.3%), LTG
(+19.4%), and EDC (+16.1) have benefited from mean reversion
followed by SMC (+15.7%), JGS (+13.8%), and ALI (+12.7%). Others like
PCOR (-9.6%), RLC (-5.8%), EMP (-2.9%), GTCAP (-2.8%), and FGEN (-
2.1%) did not benefit from the rotation.
 Market volatility has been tightening since start of February with rolling
10-day volatility now at 14% (low of 10%) from a high of 25% in early
January. This contraction in volatility cannot go on for long. Technicals
are increasingly divergent and volumes have increasingly been showing
signs of churning inside the range. This week, our resident Elliotician,
Jojo Gaston updated his big picture count where he showed that, even
if we make a push towards 7547++, this is just wC of wB(WC) which is
just a set up for a correction this 2Q17. Worst case is that the market
correction lasts until 3Q17 at which point wave C of WAVE 4 will be
complete.
 In other words, we do not see the case for a sustained breakout in the
stock market. If anything, it’s starting to feel that the “bullish” move in
financial is just a set-up for a bear run against the large banks. Over the
past two days, we know that properties diverged and moved against the
banks. We feel that conglos are about to follow suit together with
industrials.
Copyright: BOH SocietyBottom
2017 line, stay dry.
BOH MODEL PORTFOLIO
21 February 2017 12:30 AM
#BOHMOM: February 2017 Review

Key Notes:
 Philippine stocks have traded sideways for most of February with only a
few key names outperforming the broad market. The PCOMP Index has
threatened to break below 7179 line in the sand a couple of times with
sentiment turning bearish on the back of a couple of earnings misses.
Gaming provided decent two way trading with the casinos the lone
bright spot as they smashed 2016 earnings expectations. Infra failed to
move as a theme but we did see mid-cap banks fly. But the real
outperformers came in the third line space with names like ALCO, TUGS,
STI and LMG flying high before hitting key resistance levels.
 Our BOH Momentum (BOHMOM) Model portfolio outperformed the

broad market during the period. Our optimized port was driven by
TUGS, DNL, MCP, and ANI but was dragged a little bit by the slide in
BLOOM, PLC, and BRN to some extent. The rest were just flat and
consolidated in a tight range while maintaining a bullish bias. The
Minimum Variance Algorithm was the best performer at +6.83%
followed by the Minimum Correlation Algorithm at +4.72%. Curiously,
the Momentum Weighted Algorithm came in third at +2.68% as big
bets in SMPH, MRC, and BLOOM failed to generate alpha. The PCOMP
Index printed a flat +0.68% over three weeks.
 The BOHMOM is scheduled to be rebalanced tomorrow. We are

removing BRN and BLOOM to give way to faster moving names and
replacing them with SMC and ALCO. We’re adding SMC to increase our
index-related exposure and bringing in ALCO since it is the leader stock
YTD and it is finally pulling back to levels we’ll be comfortable to trade
on a three week window.
PH Flows Scorecard: What Are Foreigners Doing?

 Among Philippine stocks, SMPH is the top recipient of foreign inflows
over the past 13 weeks. It is in a tight range and has mirrored the
PCOMP Index very closely with a YTD return of +5.5%. While foreigners
added Php784 million over the past four weeks, SMPH has fallen behind
the TTL near all-time highs. BDO is also a strong recipient of foreign
inflows with Php1.97 billion net bought over the same 13 week period
albeit it is underperforming the broad market with a YTD return of
+3.66%. Curiously, EDC has attracted some Php542 million, which has
helped this forever laggard stock to up +13.4% this year.
 Among non-index names, RRHI leads with Php648 million inflows

followed by COSCO Php358 million, DNL Php355 million, MWIDE
Php382 million, PPC Php276 million and STI Php261 million. Strong
inflows has helped names like DNL RRHI, MWIDE and STI but not yet
with COSCO and PPC. We are similarly seeing big YTD runs in BLOOM,
FPH, and DD despite relatively small foreign participation.
 What is clear so far is that foreigners have had very little impact on the
winners this 2017. Even names that were aggressively sold by foreigners
like SM, MBT, AC, and SECB have performed decently. We’ve also seen
strong outperformers too in the likes of MCP and GLO, which are up
+34.9% and +18.6% YTD despite foreign selling. On the other hand, the
common denominator for the underperformance of names like CHP,
NIKL and PCOR are strong outflows.
 Our key take away: While the story this year isn’t about inflows or
outflows,
Copyright: it’s
BOH Society 2017still best to stay clear of names that have fallen double
digit especially if foreigners are on the other side selling.
BOH TRADE IDEA
GO LONG PHOENIX PETROLEUM TARGETING 12.00

Rationale: Question of when not if global oil prices go up
 Over the last ten years, the market share of small players like Phoenix
Petroleum, Unioil, and Seaoil have grown collectively at the expense of
Shell, and Chevron. The ability to source petroleum products at a lower
freight cost from refiners like Petron has benefited the bottom line of
these third players particularly that of Phoenix (PNX).
 While sharp decline in oil prices in 2014/2015 dampened profit growth

seen in previous years, Phoenix has been able to strengthen presence in
industrial, aviation, and retail and commercial segments. We saw gross
profits recover in 2016 and if we go by historical correlation between oil
price movements and gross margins of oil companies, we expect 2017
gross profits to be even better. Global crude oil are up by 70% from
2015 lows and are expected to move up by another 25% from current
levels this year. Rising global crude oil imply better prospects oil
companies and is our key thesis for buying PNX. For now, PNX prices
are being buoyed by the company’s buyback program, which it first
announced in May 2016. The company’s board has since hiked its
repurchase of shares program twice from Php 250 million to Php700
million with the stock’s price going up by 22.6% since.
Expression: Buy the dip in spot or trade the contracting

volatility now
 Trading the dip via spot trade means buying below 6.95 or as close
to 6.61 is a better proposition than buying at market given potential
downside risk. Wait one more week for the dip.
 The alternative is to go long at market now but on smaller size. The
right entry level isn’t obvious but you need to hedge given bullish big
BULLISH CONSUMER COS BUT NOT ALL

 We took a risk last year when we said we were turning bullish consumer
names. It was not an easy call because we just loved being bearish (and
correct) on this sector for 12 months plus months before. Key names we
liked were MRSGI and RRHI, which performed remarkably in the first
three quarters of the year before suffering in a setback in the fourth
quarter. We remain bullish MRSGI and RRHI but not at these levels.
 Among the names we were excited about going 2017 was PF, which we
argued was a must have for low volatility investors. It’s up a quiet
+16.1% YTD and testing the top end of our range. We like RFM and
we’re evaluating MAXS. We’re trading PGOLD because we’re bullish
COSCO. We initiated a trade call in PIZZA this week and a trade call on
DNL last December. Turning bullish DNL is significant since it is the only
name we missed since its IPO. DNL is +12.6% YTD and trying to trade
higher. If you look at the above list of names, what you won’t find there
are URC, JFC, SSI, and EMP. These are crowd favorites which we believe
will underperform this 2017.
 Let me go flat out saying that we remain super bearish URC and JFC.
Earnings for 4Q16 is out for JFC and while the company reported a
year-on-year jump in profits of +63.7%, the contributing factor were
non-recurring items which included a write-off of other liabilities/excess
accruals. We also noted that operating expenses picked up, which
explains short fall in operating profit. We believe earnings misses will be
a theme for these two consumer companies. While we fully intend to
trade the volatility at some point, we’re not there yet.

 PCOMP range 7179 to 7297. Extended range 7050 to 7400.
PH SMALL BANKS ALL THE WAY AND BPI

 We are overweight small banks and underweight big banks. We believe
that a regulatory environment that will increasingly require banks to
raise capital will be conducive for industry consolidation outside the
three largest banks. We like RCB and CHIB. We are looking to go long
PNB and EW.
 The problem with betting on a bank consolidation theme is timing.

Everyone knows it’s going to happen. Everyone has tried to position for
it since 2013 and failed. You don’t really know if it’s going to happen
until after the fact. Right now, all we know is that small bank valuations
are attractive with forward P/BVs below 1. While it may not be attractive
for owners to sell at this point, the need to beef up capital ratios will
force them in that direction.
 On the other hand, large banks will start to feel the stresses from
constantly having to raise capital so even if they’d like to pick up some
of the small banks at the right price, it’s highly unlikely it’ll happen. That
leaves small banks buddying up with other small banks. And we are
pretty much betting the house that this will drive the outperformance
for banks like RCB, CHIB, PNB, and EW.
 As a hedge to our big bank bearish bias, we prefer being overweight BPI
because it could be next in line to hike capital. BPI’s minimum CET-1
ratio will fall below the 11% minimum for highly systemically important
banks by 2019 and raising capital will keep BPI inside a tradeable range.

BOH FLASH NOTE
09 February 2017 9:00 PM
ALERT! ALERT! TAKE PROFITS IN MINING

 Mining stocks recovered sharply from the sell-off triggered by
suspension orders last week over the past four days after Malacanang
spoke up and said that mining operations will not be closed
automatically and that the government will accord all companies due
process. When nickel miners were falling, we reiterated our trade call
and suggested we ignore Gina Lopez. This has worked out for us. Over
the past two days, MARC is up +14.1%, FNI up +9.6%, and NIKL +3.2%.
 What I’ve found interesting since Gina Lopez’s press conference and
prior to Malacanang’s statement today is that Gina already laid the
predicate for passing the ball to President Duterte, saying that it would
be the president’s call to enforce the suspension order or not at the end
of the day. What it tells us is that Gina is NOT forcing the issue but that
this is a power play to close all irresponsible miners. Given how popular
anti-mining sentiment is in the country, it will be very difficult for
Malacanang to override the closure and suspension orders of the DENR.
 Instead of milking our good fortune, I recommend taking profits on all

nickel mining trades. Because of the above political dynamics and my
assessment of Gina Lopez’s ability to play her cards right with the
president, I’m worried that they’ll be able to lobby her successfully with
the Commission of Appointments. I understand her confirmation
hearing will be next week or if not the week after next, the last thing I
want is to be holding nickel miners (and maybe even coal miners like
SCC and COAL) if she gets confirmed as the Secretary of DENR.

09 February 2017 1:55AM
BULLISH SMALL BANKS, BEARISH BIG ONES

 We’ve been preparing you since 4Q16 last year for a rotation into small
banks like RCB, CHIB, PNB, and EW this 2017. Our high con bet is RCB
because it’s the one most likely to be picked up by a big bank. No news
on this front but we have been hearing unconfirmed reports that there
is a deal being worked out for a merger with another mid-tier bank.
We’re still trying to get more color on this. In any case, RCB is trading a
little bit below book value so that’s given us some margin of safety
despite being a relatively illiquid trade. We finally got a big jump today
after close to 6 months being in the high con basket. We’d like to see
more volume but today’s move is definitely welcomed.
 The other name we like is China Bank. We believe it’s an earnings story.
Last year, we saw net income come in ahead of consensus expectations
driven by growth in non-interest income, trading and FX gains as well as
fees and commissions. Loan growth was a bit stagnant but loan growth
is probably the easiest lever to grow. Technically, we know that it’s on
its way to completing a very large inverted head and shoulders and our
view is that we’re going to see a breakout soon given rotation into the
small bank segment.
 Finally, we like PNB this 2017 given its pivot in 2016. We believe the
worst is behind this trade. Today’s push while still lacking volume tells
me that it’s buy on dips already. Like RCB, it looks like a very big cup
and handle with well defined trading range. I think smaller banks will
outperform bigger banks this year.
Copyright:
WhyBOH avoid
Societybig
2017 ones? Three Words: MORE EQUITY ISSUANCES
TAKE PROFITS IN GAMING

 Gaming stocks have outperformed YTD led by MCP (+24.3%), PLC
(+20.5%), and BLOOM (+17.1%). This strong run was spillover
momentum from 2016 when casinos saw gaming revenues surge
following thawing Chinese relations and inflow of Chinese tourists.
While we bullish sentiment will likely persist over the next three months,
we believe the uptrend is extended and will lead to bouts of profit
taking.
 We know that Okada Manila soft opened last December and at some
point this new player will put pressure on Solaire, City of Dreams, and
Resorts World Manila. We recommend locking in gains for now on most
gaming stocks. MCP looks particularly vulnerable given lackluster
volume during the breakout above the top end of range. A break below
4.56 will confirm a near-term top. We are seeing sellers come out in
BLOOM above 7.43. While it’s always possible to set up another run
while above 7.06, odds are BLOOM will rollover and slip below 6.95.
 Among the three, PLC is probably the strongest looking name. It’s
behind the trend tail line but not particularly worrisome given the
smooth uptrend. We’re hoping it just consolidates sideways while the
other gaming stocks pull lower. Finally, BEL lagged the sector. It’s just
up +3% and has repeatedly struggled to break 3.34/3.41 level necessary
to widen its trading range. But in terms of valuations from its rental
income, BEL is attractive. We also think it’s a special situation play that
deserves looking into. Let’s see if we can buy BEL near 3.00 again.
Copyright:
BOHMOM BOH Societyis
2017loaded gaming stocks. We’ll take out BLOOM and MCP
when we rebalance on 21 February.
BULLISH MINERS DESPITE VOLATILITY

 Last week Gina Lopez announced that the DENR was suspending and
closing some 23 mining operations in the Philippines citing how these
companies were operating near functional watersheds and posed risk to
communities in the area. Those hardest hit by the announcement were
MARC (-17.5%), BC (-17.1%), LC (-14.6%), ORE (-9.5%), and DIZ (-9.5%).
We also saw FNI’s price swing from 2.92 at the start of day to a low of
2.19 before recovering sharply to close at 2.74. I don’t think we’ve seen
the end of this volatile trading in mining.
 Having said that, we remain bullish PH miners this 2017. While I was
expecting this year to be full on bull market in mining given lack of
foreign demand for blue chip stocks, surprise action by Indonesia and
the iron hand of Gina Lopez has kept my enthusiasm in check. This year
will be about the opportunities in mining volatility instead of just
passively investing in these PH miners. The strongest name is NIKL so
let’s try to pick that up below 6.52 with a stop below 5.84. FNI is
tradeable below 2.66 and MARC near 1.70. MARC is tricky since it is one
of the names named for closure so you need to have a tight stop below
1.70 since a break below that level means it can go to 1.54 next.
 In any case, if you find mining volatility too difficult to handle, stick with
consumer related plays. We like PF and ANI. We love RRHI and we’re
waiting patiently for MRSGI. We’re trading PGOLD because we love
COSCO. And MAXS is buy on dips. Again, there’s a lot we can do in this
market so walking away is not an option.
Copyright:
PCOMP support
BOH Society 2017 at 7175, we sell all on the break above 7403 to 7547.
DOLLAR DOWN. WILL RATES FOLLOW?

 Overnight news has been about President Trump’s travel ban and
subsequent firing of the acting Attorney General. This has triggered a
minor risk-off mood in US equities and consequently on the US dollar
and bonds. While I always say that political risks get priced-in very
quickly, I’m sure market sentiment will continue to drive the dollar
lower, I’m not sure how far yields can fall on this.
 We’re interested in the direction of yields and the US dollar because we

know that if both fall, this can provide a window for our bullish
commodities call. At the moment, the entire commodities complex is
green, led by Silver, Copper, and Gold. Crude oil is back trading near
top end of range and Nickel is mounting a v-shaped recovery and now
testing US$10,000. If commodities can defy gravity by two to three
weeks, that should be a good enough time frame to establish a base for
a run in 2Q17. Again, we need rates to follow dollar weakness for our
bull market call on commodities to gain traction.
 In the meantime, we should watch our favorite nickel miners already.

NIKL is the strongest of the three miners and trading near range
support already. FNI is getting attractive already. I would love to buy
MARC but I honestly think we can pick it up below 2.00 or close to 1.83
so let’s stay out of MARC for now. We continue to be bullish AGF as a
nickel miner play but unless Lucky Securities gets out of the way above
3.85, I’m afraid we’re stuck inside the range.
 What about gold miners? Well, Philex is strong but it needs a catalyst.
Gold is still below US$1300 so that’s not it. We need news flow on PXP
to pick up again but technically PXP sucks. We love Atlas but we’ll only
trade that near 4.71.
BOH GUIDE
30 January 2017 9:30AM
BOH MOMENTUM MODEL PORTFOLIO

 The BOH Momentum Model Portfolio (BOHMOM) seeks to identify
stocks with the highest quality momentum in a process-based
approach. We believe that investing in stocks that have proven itself
capable of sustaining their trends in long periods of time is probably
the easiest way to invest in the stock market. Through the BOHMOM,
we hope to introduce a systematic way into your decision-making
process. The BOHMOM is a passively managed model portfolio that
we’ve put together following five sequential steps:
 Focus on stocks with liquidity. We wanted to make sure that the

stocks are liquid. While there are lots small and micro cap names you
can trade, it’s very important that we can get in and out of these trades
easily. Our key metric is the 200 day average value turnover with all
stocks generating more than Php5 million over the specified time
horizon.
 Identify stocks based on a generic momentum screen. We filter

based on the composite score for error adjusted momentum and trend
efficiency, which is a blended momentum metric for capturing short-
term and longer-term trend, and this is our way of capturing future
outperformance.
 Screen for momentum quality. In this step, we look for stocks that
have “high quality” momentum. What this means is that we’re looking
for stocks that have smooth trends and we use the computation
introduced by Zhi Da, Umit Gurun, and Mith Awarachka, and we try to
address mistiming by having a three week rebalancing period.
 Apply expert judgement. Following mathematical rules is well-and

good but math can only tell us so much. We apply some expert
BOH GUIDE
TIPS ON HOW TO READ RESEARCH

 As investors, we’re left to our own devises on how to read research. The
following tips were shared with us by our friends from Socgen with the
aim of giving you some guidance.
 Verify the numbers. More often than not, we’re dealing with second
hand data so we need to take them with a grain of salt. When you can
verify from primary sources, you should take the time to double check
because recent studies have shown that statistics cited in research
papers are incorrect. Whether you’re looking at averages, sums, or raw
figures, the numbers need to make sense. At some point, you’ll develop
instincts about the data and you’ll automatically know when someone is
pulling your leg.
 Check the source. Everyone has an agenda especially in financial

markets where writers are paid to spin stories. Whether you’re reading a
report from your broker or a note or tweet by your favorite Facebook
guru, you must not take things face value. When left unchecked, the
authors resort to all sorts of plausible sounding stories that twist the
original conclusions of the quoted report and or data. Most do this
because they know that people never bother to check the info out.
 Read more. Being curious and open minded will help you develop as a
trader. Don’t just read the headlines. Go into the details. Research
papers are normally structured like an inverted pyramid so you just
need to get through the first two-thirds of the content to get the
conclusions.
 Don’t be tricked. Self-references and catchy words/gimmicks are just

tricks to increase the readership of their publications. We have seen a
lot ofBOHpeople
Copyright: victimized by such gimmicks so be mindful of these tricks.
Society 2017
CORRELATIONS MATTER FOR INDEX INVESTORS

 The accompanying scatter plot chart shows the correlation of the
various subsectors and of individual stocks in the PSE Composite
(PCOMP) Index over the intermediate term expressed as correlation
distance and measured against momentum. It highlights that if you
simply want to track the movement of the benchmark index, you best
bet would be to hold Conglomerate first, Property next, and a little bit
of Industrial last. Given the recent market rebound, you need to know
the best way to express the recovery if you’re an index only investor.
You can do this by studying the mutual relationship of individual names
with the PCOMP Index.
 For conglos, your bets are AC, JGS, and SM but of the three JGS stands
to give you a little bit more alpha given recent uptick in momentum.
AC’s v-shaped recovery surprised us a little bit but it looks stretched
and likely due for a pause. However, we believe SM still looks like the
better choice given proximity to the top end of our range and decent
odds of an upside breakout. For properties, ALI appears more tightly
correlated to the PCOMP Index but we reiterate that SMPH is the better
choice despite being lesser correlated. Stay away from RLC and MEG
since both are still in a bearish trend. For industrials, the go to move is
URC followed curiously by EDC.
 On the other hand, if you’re looking for uncorrelated index bets, your
choices are SMC, SCC, and GLO, which are names that are in a bullish
trend. BDO looks like an interesting choice as well but probably after
the stock rights issue already. For those in a range, there’s not a lot to
choose from but the most interesting ones are MPI, MER, and ICT.
PH TECHS
 President Donald Trump’s inauguration speech sounded every bit like
his campaign speeches where he mouthed off the ills of the Obama
Administration and spoke about social and economic collapse that has
to be arrested. America first, he said. Buy America, he said. Bring back
jobs to America, he said. These are protectionist posturing that should
send chills to the rest of the world.
 For one thing, the US is the most ahead in the recovery business cycle.
Europe is still an economic mess and the EU is about to get hit by Le
Pen, who is leading in the polls and who has run under a campaign of
Frexit. Japan is still in recovery mode, and while Abenomics stands to
benefit from strengthening US dollar (as evidenced by the sharp
recovery in Japanese equity markets) there are still a lot of economic
headwinds ahead.
 The good news for us is that China seems to be in this economic “sweet
spot” at the moment after it printed a full-year growth of 6.7%. The
pace of credit growth is still way too fast but this shouldn’t be a
problem as long as the economy is growing. Housing has stabilized with
the sector’s inflation cooling further in 4Q16. We fully expect this to be
the case for a quarter or two before a slowdown in demand becomes a
problem.
 For the Philippines, we’ll be reporting 2016 GDP on Thursday and

expectation is for a 7% growth in 4Q16, which means a full-year growth
of 7%. To us, a full-year 7% is not good enough and probably represent
a sell-on
Copyright: news
BOH Society 2017 opportunity given the above global macro backdrop.
We’ll only change our tune if PH GDP surprises with a +7.5% 4Q16 print.
19 January 2017 9:00 AM
PH TECHS
 President-elect Donald Trump will likely be a disruptive force in financial
markets just like President Rody Duterte has been for us. For two days,
financial media has zeroed in on Trump’s tweet about how he prefers a
soft dollar, which pulled the DXY close to 100. This habit of tweeting his
views is not new because we also he went after pharmaceuticals a
month ago and before that he blasted North Korea and China. Mr.
Trump will be inaugurated on Friday and the world will never look the
same from hereon.
 In any case, dollar down should mean commodities up and emerging

markets up. Unfortunately, treasury yields appears like its getting ready
to push beyond 2.60 after hit held support around the 50 day moving
average at 2.36. This alters the correlation a bit since bond yields have a
greater influence over asset repricing than the US dollar. And with the
US data showing CPI hitting 2%, we should expect higher rates (and US
dollar) in the weeks to come. Meanwhile, Janet Yellen is scheduled to
talk twice this week before Friday. With luck, she’ll still sound dovishly
hawkish as she navigates the US economy around Donald Trumps
tweets.
 For Philippine stocks, the PCOMP closed below key level 7166 despite
closing green yesterday. The next known support is 7050/7083 area. We
are staying clear of large cap names. There are good, tradeable names
in the third liner space like CYBR, MRC, and COAL. ALCO is up +105%
YTD and it does look stretched but if you get an opportunity to buy dips
near 0.64/0.74, there should be scope for another 100-200% upside to
that trade. IMI appears like it wants to transition to a higher base range
so stick
Copyright: with
BOH Society 2017 it. Finally, our other high conviction trade TUGS is
correcting so let’s try to buy back as close to 2.60 as we can.
18 January 2017 8:00 AM
SITTING IN THE SIDELINES NOT AN OPTION

 The more experienced you become trading the stock market, the more
you’ll realize that there’s always more reason to sell than reasons to
buy. From an environment of high equity valuations to rising regulatory
risks, you’ll hear about companies missing earnings expectations or
some government sanction or policy change that negatively affects the
outlook of a company. Truth is, you’ll be scared out of your wits if you
focus on things you read in the news.
 While we do try to put context to our commentary by citing developing

news, we do so with our technical backdrop in mind. For instance, we
cited the uncertainties going into Donald Trump’s inauguration as a
reason to sell into the top end of our range but the real reason for the
call is more about staying fateful to our process. Our baseline view since
our market took back 6954 is that the market rebound was more
technical and flows. Once flows slowed and reversed, which did three
days ago, the market stopped going up.
 You’re probably thinking of sitting in the sidelines and just wait for the
market to hit 6,200 area given our roadmap but our experience have
taught us this is the wrong way to go. For one thing, we could be wrong
and the market trades firmly between 7000 and 7400 from hereon. But
more importantly, there are always opportunities for us to trade at key
levels as long as you are willing to make tactical shifts. So rather than
burying your head under a pillow, focus on ranges and subtle
improvements in sentiment to stay engaged. Just take it one range level
at a time.

17 January 2017 9:00 AM
WHAT’S WORKING SO FAR?

 We are three weeks into 2017 and performance has been largely
uneven across index and non-index names. With the components of the
PCOMP Index, year-to-date leaders include Globe Telecom (+12.7%), JG
Summit (+12.3%), and Security Bank Corp (+11.1%) leading out
followed by PLDT (+8.6%) and SM Prime Holdings (+7.8%). Of the five,
we prefer trading GLO, SMPH, and to some extent JGS. We’re
disappointed SECB’s momentum fizzled out abruptly after a strong first
week start. While it’s still possible to see TEL hit 1715 as long as it holds
support above 1456, there’s no sense holding two telco names when it’s
clear that market prefers GLO over TEL at this point.
 We were waiting for sector rotation to kick in after the PCOMP Index hit
resistance at 7282 but no luck so far. Our key call outside our bullish
mining outlook is that we’ll finally see a rotation back into consumer
names after being out of favor for nearly two years. We prefer non-
index consumers like MRSGI, RRHI, PGOLD, and DNL over large cap
names crowded ones like JFC and URC. We’re interested in RFM and
MAXS but only at lower levels given their strong performance over the
past month. We understand that First Metro wants to launch a
Consumer-focused Exchange Traded Fund in 2Q17 so may be we’ll get
some consumer sector action by then.
 In the meantime, we’re hoping infrastructure plays will become popular

again but so far news flow on government infra spending has been thin
and the theme is taking too long to develop. Metro Pacific looks well
position so it’s a buy dips near 6.40 area. We’d love to trade Megawide
near 12.45 area. We’re sticking with our high conviction call that Cemex
Holdings
Copyright: is a2017better way to express our bull call on infra projects.
BOH Society
16 January 2017 8:00 AM
COMPLACENCY ACROSS THE BOARD?

 With the exception of last week’s relaxation of Indonesia’s ban on nickel
ore export, there’s not a lot of things to talk about these days. Donald
Trump will be inaugurated as the 45th President of the United States on
Friday, January 20, and there’s a bit of calm across major equity
markets. We are seeing jitters in emerging markets but by and large,
most are off November lows and trading near 2017 highs.
 In the commodities market, with the exception of nickel, which has been
sliding since December, industrial metals look set to resume uptrend.
Whether it’s the market’s way of cheering Donald Trump as he takes
office on Friday or because of recent upside surprise in the US dollar,
what is clear is that our view that copper will take back US$3.00 this
year will happen. Our preferred way to express this view is to go long
Philex Mining because it is a large copper producer that’s had a
reputation as being a gold miner. Technically, we believe that PX will hit
12.98 this year but only if it can stay firmly above 8.70/9.08 area.
 Alternatively, we are equally bullish Atlas Mining if not for the massive
dilution impact of the warrants. Long term, we’re fairly convinced AT will
go back to 7.04/7.84 but in the meantime there’s very stiff resistance at
5.35/5.52 area with max overshoot at 5.70. We prefer to buy AT near
4.71 or even lower.
 In any case, we still have a lot of work to do. We cannot keep our guard
down as long as we’re above the trend tail line at 6989 and below the
top end 7282 (max overshoot 7547). We can only breath easily once
we’reBOHbelow
Copyright: 6954. Until then, trade the range.
Society 2017
BOH FLASH NOTE
13 January 2017 9:00 AM
INDONESIA LIFTS EXPORT BAN ON NICKEL

ORE, BAUXITE, FINALLY
 On Thursday, Indonesia lifted its exports ban on nickel ore, bauxite, and
concentrates of other minerals since it imposed the ban in 2014. The
change in the Indonesian ore export rule, especially with respect to
Antam which has low grade stockpiles, will continue to weigh on the
nickel market, which has been sliding since December.
 At first glance, the move looks temporary with exports with Indonesian
officials saying that exports would be allowed for up to five years with
volume heavily regulated by government and independent inspectors.
This policy shift is a bit of a surprise since we’ve been heard this news
several times over the past two years. But with a deteriorating fiscal
position, the Indonesian government had little choice but to pivot anew.
If it’s temporary and regulated, the impact will be priced in quickly.
 What does it mean for the nickel market in the immediate term? Well, it
means there’s potentially more supply than recent expectations. In
2016, the nickel market was in a deficit and prices recovered because of
better demand and a decline in Philippine output. We don’t expect the
lifting of the ore ban to alter our view that the market will remain in
deficit for another year or two but the shift in Indonesia does mean that
there will be a natural cap in the upside for Nickel prices. What this also
means is that we’ll finally be able to buy MARC, NIKL, and FNI cheap!
 Technically, we believe that LME Nickel will be ranged bound between

US$10,000 and US$12,000. At least until we get more clarity on what
really is happening in Indonesia on the ground.
12 January 2017 9:00 AM
ON STOCKS AND DIVIDENDS
PLDT

BOH GUIDE
11 January 2017 9:00 AM
JUST STARTING OUT? USE EQUAL WEIGHTS

 I love portfolio optimizers just like the next geek. When used correctly,
allocation strategies like mean-variance optimization, minimum
correlation, minimum variance, risk parity, and momentum weights can
greatly augment portfolio performance. Unfortunately, most of these
strategies leave little room for stock selection error. Especially those
that do not avoid extreme allocations (concentrated bets).
 Our preferred way for newbies is equal weighting. It is easy to

implement and it minimizes the risks from picking out the wrong stocks.
Also, in our experience and as validated by others who do portfolio
research, equal weighting (1/N) can beat sophisticated allocation
strategies. Besides, portfolio maintenance work becomes less
demanding, which can effectively reduce trading frictions and improve
overall net returns. Last year, we showed how to use an equal-weighted
portfolio to the PCOMP Index over a seven month window following an
end of month rebalancing. We were able also able to show how the
benefits of a Minimum Correlation (MinCorr) Algorithm to outperform
both the benchmark and an Equal Weighted (EW) portfolio.
 What we like about the MinCorr is that it moves very similar to an EW

port but provides some room for larger outperformance and lesser
portfolio volatility given the way it aims to minimize within portfolio
correlation. And when you factor in momentum to your stock picks, the
results for both MinCorr and EW can be impressive.
 This year, our goal is to show you that Equal Weights is good enough
suchBOH
Copyright: that if you’re
Society 2017 just starting out, you should stick to Equal Weighting.
09 January 2017 10:00 PM
PH TECHS
 We remain sellers Philippine index stocks near 7282 even if it
overshoots. Strategically, we prefer trading non-index names on the
chance that the market will remain buoyant and tradeable until March.
We’re currently tracking two known top-down risks: (1) Donald Trump’s
appointment of Peter Navarro, the author of Death by China and (2) the
planned amendment of the Philippine constitution. The first one could
put pressure on a recovering Chinese economy and represents policy
tail-risk for capital markets. And the second one, well, I don’t even know
where to start since I have zero love for the Philippine Congress.
 Anyway, in case you missed our free note outlining Senor Jojo Gaston’s
technical outlook for the rest of 2017, it looks something like this. The
narrative you can read on the link below.

09 January 2017 9:00 AM
PH TECHS
 Philippine stocks rallied for a seventh straight day with the PCOMP
Index now 752 points higher than they were a week after the FOMC
hiked rates in December. Unfortunately, we are getting near-term
overbought and the bounce feels more technical and partly flows driven
than a sustainable, fundamentally driven one. We saw a very similar
bounce in August/October 2015 when the index was trading below the
200-day moving average and it did not work out for those who chased
the dead cat bounce. Having said that, if the PCOMP Index can stay
above 7000 and it transition into a range between 7000 and 7413 over
the next three weeks then maybe it has a chance at avoiding a deep leg
down. This is not our base line view.
 In the meantime, index names that have offered tradeable opportunities

are those that got sold down aggressively in 2016. This explains why our
momentum driven model port is falling a little bit behind. Among the
index names that have outperformed the past five days include GLO,
TEL, ALI, GTCAP, and MEG. Of the five, we only have a good
understanding of the GLO and TEL trades. We recommend holding onto
GLO and TEL and avoid ALI, GTCAP, and MEG. We’d much rather wait
for a resumption of trend in SMC and SMPH than rotate into mean
reversion trades.
 Unfortunately, we’ve yet to see a clear theme develop. We like mining

but unless we see flows dry up across index names, the move in mining
can be pushed back to Feb or even March. I am very interested in
consumer names MAXS, MRSGI, PGOLD, RFM, and RRHI. I also believe
that DNL will break the top end of its range. Avoid JFC, URC, and EMP
for now.
04 January 2017 8:35 AM
REVISITING CONSUMER NAMES

 We’ve pretty much kept you out of consumer-related names ever since
we spotted what looked to us like a major top in the PCOMM
(Industrial) Index. The sector is down -18% from its all-time bubble high
of 13,080 and trying to hold support above 10,200 area so there’s a
little bit of room to trade around the range. We believe the sector still
has a lot of downside but the next leg down will probably be set-up by
4Q16 earnings, which should come out late January. Having said that,
we are pivoting this year to a Trump-led global economy and
protectionism is going to be a key theme. We believe that consumer
related companies with strong domestic focus will thrive under such an
environment.
 What this means is that we’ll have to look at RRHI, PGOLD, and MAXS to
name a few of better known consumer-related companies. I wouldn’t be
surprised if we start seeing people look at JFC again valuations of its
become compelling again. And if people start looking at JFC, they’re
bound to look at DNL as well given the latter’s high earnings visibility.
We’re biased URC given our long standing bearish call on that trade but
if you can manage the downtrend, the range is well defined and it
should be tradeable. So far, we’re seeing glimpse of this resurgence of
consumer-related plays with RFM surprising towards the latter part of
2016. There are other interesting names like CNPF and PF but these
more support names than key consumer trades you can rely on for
outperformance in your portfolio.
 As far as trading the PCOMM Index is concerned, all you need to do is

keep your eyes on 10,665 and 10,200. Range tradeable as long as we’re
above
Copyright: BOHthese key levels. Useless if below.
Society 2017
BOH MODEL PORTFOLIO
02 January 2017 8:00 PM
MODEL PORTFOLIO FOR JANUARY

Some Notes:
 We’re very happy to release our model portfolio for January 2017. This
is a concentrated index only model portfolio with eleven names, which
will be rebalanced on the last day of each month. Names are chosen for
their relative strength with minimal discretionary override that takes
into account risk-reward and possible corporate action that may
negatively our immediate-term outlook.
 We are overweight conglo despite our cautious outlook for 2017 mainly
because we’re still bearish on properties and telcos, and consumer
related names. We’d much rather be wrong holding diversified
businesses than to be wrong cyclical sectors at this point. We’re bullish
energy but we opted not to add any just yet since most if not all are still
in a bearish trend. Since we only get to rebalance once a month, it’s
tougher to bottom pick when you don’t have a stop loss intra-month.
 Our base model is the Equal Weighted (EW) portfolio and our
preferred allocation model is the Minimum Correlation Algorithm
(MCA), which is designed to minimize portfolio correlation. We’re also
introducing two more optimization models: the Momentum Weighted
(MW) portfolio and the Minimum Variance (MV) portfolio to educate
you about how portfolios perform under different optimization models.
These optimization tools are no way exhaustive. There are others out
there you can research about. Our benchmark is still the PCOMP Index.
 For the MCA, our top 5 holdings are:

ICT, SECB, PCOR, SMC, and GTCAP
BOH MODEL PORTFOLIO
01 January 2017 3:00 PM
MODEL PERFORMANCE REVIEW

Some Notes:
 Trying to beat the index in a bearish market with a concentrated
portfolio is no easy feat but is the core goal of our BOH Index Only
Model Portfolio. Our quant-driven approach sought to identify the most
resilient names and underweight sectors we expected to underperform
going into the end of the year.
 Through 4Q, we stayed overweight Conglos and Banks but kept away
from holding anything in the Industrial and Services space. We kept our
proxy bet in the Property sector just in case we were wrong about our
bearish view on the market. We kept our mining exposure even though
we knew there’s little upside in the bet until the end of the year. At least
we were spared the drama in consumers and power the past three
months.
 To summarize, we launched our index-only model port head-to-head

with the PCOMP Index last 16 May. During the period, our Minimum
Correlation Algorithm (-0.60%) and Equal Weighted (-1.50%) model
portfolio generated alpha of +742 basis points and +650 basis points,
respectively, versus the PCOMP Index (-8.02%). There’s certainly a lot of
room for improvement especially in the area where we overrode model
selection and applied expert judgement. The ports were penalized by
poor sector rotation decisions between August and October.
 For 2017, we will continue our Index Only Model Portfolio product and
publish names every month. But instead of just the Minimum
Correlation Algorithm and Equal Weighted portfolios, we will be
introducing
Copyright: a Momentum Weighted portfolio into our portfolio
BOH Society 2017
challenge.
BOH GUIDE
22 December 2016 9:35 AM
Transforming Raw Momentum to Weights

 This is the second article of our discussion on ranking by momentum where
we outline our preferred way of ranking stocks in our investment universe
and how we can use the same information to allocate weights to our
chosen names. Our recommended allocation method is equal weights but
one can enhance overall portfolio returns by using momentum as a
weighting tool.
 Most retail investors tell us that the preferred method for enhance overall
portfolio returns is by going “all-in”. The view here is that concentrated
portfolios increases the odds of tripling the portfolio in the shortest
possible time. While there is merit to this “all-in” approach, having
concentrated portfolios requires strict adherence to risk management rules.
More active traders can choose this “very sexy” option but for most people
this isn’t viable. Odds are, you’ll just end up blowing up your portfolio with
this allocation strategy.
 This brings me now to using momentum as a weighting tool. Rank score is

the raw momentum metric and the number by itself doesn’t give us any
info. All it does is allow us to rank names in our universe from strongest to
weakest and help us zero in on the relevant names. To help us interpret
Rank Score, we’ll need to do a Gaussian transformation and standardize raw
momentum and what you get is the average Gaussian momentum score of
each stock. The transformation then gives the values some meaning
because now they’re in percentile form.
 One rule you could have is to you could have is to only hold stocks with a
Gaussian score > 0.50 or alternatively you could also focus only on names
in the top quartile (Gaussian score > 0.75) for a portfolio concentrated in
the top stocks. This is well documented in finance literature.
 To convert the Gaussian score into weights, divide the Gaussian Score of
the stock
Copyright: A by
BOH Society the sum of the Gaussian Scores of the stocks in your model
2017
portfolio. This converts them into positive weights and you can apply them
BOH GUIDE
Ranking by Momentum (Nosebleed Post)

 If you need to reduce trading into just one thing, it has to be ranking
momentum. As investors, our objective is to generate higher returns for our
capital by focusing on individual stocks that outperform the investment
universe we trade. And what finance literature has shown us over the past
30 years is that being able to distinguish between strong and weak stocks
using price momentum was key to achieving better returns.
 Now there is no one specific method for capturing momentum across a

diverse universe of stocks but those you will encounter will involve some
type of averaging different momentum metrics across several lookback
horizons. By averaging momentum across lookback periods, you tend to
reduce the bias over specific points in time and capture momentum across
multiple durations. So instead of looking at four scatter plots the way we do
on QLIK, you can reduce the rate of change story you see in the plots into
one number.
 In October 2016, we introduced the BOH Curve, which is a scatter plot that
compared trend intensity and error adjusted momentum. What the tool
helped us do is visualize the interaction between the intensity of short-term
trend and of long-term momentum across the stocks in our universe in one
neat diagram.
 Trend intensity measures short-term momentum by comparing the average

seven day momentum against the average 65 day rate of change while the
error adjusted momentum is a long-term momentum measurement that
normalizes returns using a standard error estimate.
 The next step is to combine Trend Intensity and Error Adjusted Momentum
into one composite number to represent our Rank Score. Rank Score is our
standard way of ranking stocks by momentum. Rank Score is our raw
momentum indicator.
BOH BLOG POST
A (Very) Short History of BOH Society

 When we first started BOH in 2014, we focused primarily on developing our
product, our culture, and the BOH community. We learned from the failures
and pitfalls of other investment communities and decided we could do
better. In the beginning, we relied on our core group of 69 members to
scale up. Over a two year period, we have grown the Society to 865 active
clients and have worked with 1,500 plus individuals and large investment
communities in various capacities – trainings, mentorships, and events –
which helped spawn an entirely new generation of retail investors and
created an industry for trade support in the Philippines.
 In June 2015, we rolled out our investment process for generating ideas and
trade planning and execution. We introduced the concept of outliers as a
way to distinguish between leaders and laggards using quantitative models.
Our outlier framework applied an intuitive method of capturing momentum
across multiple durations using quantitative models. By teaching members
to focus on outliers, this approach forced users to only focus on relevant
trades. This is the cornerstone of our DIY approach to investing.
 In 2016, we published our trading framework where we integrated volume

analysis with dynamic and permanent parameters and our sine wave proxy
called the trend-tail line. Specifically, the framework highlighted how
overlaying a trend-tail line to a trading range augmented market timing
and reduced trading risks from being too early or too late to a trade. Our
trading system is available to all BOH Society members.
 We have done a lot over the past two years in developing a road map for
retail investors. In 2017, we intend to focus more on “Trading by Portfolio” a
topic we introduced this year but have barely scratched the surface. We’re
not sure how far we can take it down to terms an average reasonable
person can understand but we’ll see how far it goes.
Fed hikes rates, more to follow in 2017

 Overnight we saw the Fed hike rates by 25bp (the decision was
unanimous) but as we indicated previously the focus will now be on the
projected path for future rate hikes. Like last year when the Fed hiked
rates for the very first time, the median participant expects three rate
hikes in 2017 with the voting members highlighting improved economic
situation in the US. The FOMC statement cited “solid” job growth in
recent months and the steady decline in unemployment rate as key
factors but also that inflation rose higher compared to earlier this year.
Curiously, there was no mention of changes in fiscal policy since this is
considered a key factor that will determine the economic outlook and
monetary policy in the foreseeable future.
 Where does this leave us? Well, rates up and dollar up means risk assets
down. Emerging markets and commodities are particularly vulnerable to
the twin up move in treasury yields and the US dollar. The MSCI
Emerging Markets fell -2.97% and broke its string of up days since
bottoming out in mid-November. ETFs for Indonesia and India fell
-3.68% and -2.4%, respectively. Our own EPHE slipped -1.83% and now
threatening a further breakdown. Gold slid -1.65% to US$1144 and oil
looks to have topped out in the near-term and looks headed back
below US$50. The question now is, will we get a repeat of the rough
start we had this year in 2017 before global growth slips again and risk
assets recover?
 For now, let’s assume that markets will try to price in the outlook for
three rate hikes in 2017. What this means is that the US dollar and US
treasuries have room to fly higher before it encounters resistance. This
should
Copyright: give 2017
BOH Society us time to scale back into our mining bets because that’s
all I’ve been itching to do anyway.
PH TECHS
 Listless PH trading yesterday have done nothing to increase the odds of
a rally going into Christmas week next week. Unless our market gets
above 7093 by the end of the week, we’ll probably be locked inside this
6795 to 7093 range until the end of the year. Mining & Oil was steady
but the dead cat bounce in property and service we highlighted last
week looks to be running out of steam. It’s hard to do much ahead of
the FOMC tonight but we can take comfort in the fact that we’ve gone
through bigger FOMC meetings in the past and have lived to tell about
it. This too shall pass and with less than two weeks to go before
Christmas, let’s use green days to take profits on some of our high fliers
near the top end of the range.
 So what’s working? Well, MARC’s strong push above the top end of the
range makes it a buy dips near 2.00 going into the end of the year. We
don’t like APL so stay away from it. ORE is a very strong pivot candidate
for next year so you need to pay attention with a stop below 1.17.
We’ve mentioned OV in passing in the past but given our bullish
outlook on oil, we believe we’re getting to that point where we can take
OV seriously again. We are seeing some odd balls like CDC and DFNN
that have good technical set ups but we don’t know much about theses
companies to merit serious consideration.
 The big story yesterday was about our high conviction pick Harbor Star
Shipping Services (TUGS), which declared a 50% stock dividends
scheduled next year and a disclosure stating that the company will be
conducting a follow-on offering for some Php 1 billion next year for its
planned international fleet expansion, domestic feeder vessel services,
and BOH
Copyright: renewable
Society 2017 energy project. In short, good times ahead for High Con.

LOOKING TO DIVERSIFY? ADD MINING!

 The easiest calls we’ve had to make so far this year is to tell you to take
profits when the market was trading above 8000 and to be bullish
mining this year and next year. Year-to-date the PCOMP Index is flat
-1.2% while the PMINI Index is up a respectable +15.4% (+40% from
lows) so it’s not that bad if you stuck with our sector theme call so far
this year. We reckon we’re looking at another +40%-60% next year all
things held equal. Our bullish outlook is anchored on continuous
recovery in global commodity prices thanks to a huge shift in focus
from monetary policy to fiscal policy in the US and key developed
markets, which is expected to unlock demand for nickel, copper, coal,
natural gas, and oil.
 Yesterday, we noted how our market made it abundantly clear that

would differentiate price action in mining & oil sector from the rest of
the market. We believe this is healthy as it allows differentiation and
diversification in a small market like ours that’s being sold-off by foreign
funds. And such diversification is applicable not only equity portfolio
perspective but even businesses are known to diversify investments by
getting into mining when they want exposure to growing demand for
natural resources.
 For example, we know that the SM Group after being reluctant owners
of Atlas Mining will be a super majority holder of the largest producing
copper mine in the Philippines when they exercise the warrants.
Yesterday, we found that the SM Group is in talks with the Alcantara
family and would like to invest in Tampakan. Either they have such an
uncanny foresight or just a happy accident that turned into an
intentional
Copyright: one. As my good friend Mon Tejero tells me, “SM is like
BOH Society 2017
Google. Makes so much money it’s okay to experiment.”
PH TECHS
 Philippine stocks carved out a near-term bottom at 6795 and has
bounced back above 6954 last week to go back to green year to date.
The rally was led by property and service sectors, which remains to be
the worst performing sectors the past three months. Holding cos., did
their bit and contributed to the bullish reversal followed by banks and
industrials. The lone decliner over the past five days was mining & oil,
which is to be expected given the sudden shift of flows back to index
names. We prefer that mining & oil maintain its negative correlation
with the rest of the market.
 What’s most interesting about performance of property and conglo

sectors during last week’s reversal is that it does little to alter our view
about how to trade index names. We still prefer SMPH over ALI despite
the stronger reflexive bounce by ALI from oversold levels. Megaworld
which we wrote about recently continued to underwhelm despite being
the go to stock by anyone looking to play high beta historically. On the
other hand, the rally in holding cos., was led by our top index model
pick SMC, which gained 11.1% over the past five days. We’re a bit
surprised about the larger than expected bounce in GTCAP and LTG but
both are still in a downtrend so consider them sell rally trades until end
of the year. Despite lagging, we still prefer MPI (and maybe even JGS)
over other conglos.
 Good news is that small and micro cap stocks started to rally as soon as
we printed green last Wednesday. We caught ABA but missed out on
ALCO and ALT. We believe there’s scope to trade IS and RWM but
prefer to stay out of SSI and DIZ for now. We like the risk reward in MRC
veryBOH
Copyright: much.
Society 2017
Is CBRE Philippines underpricing growth risk?

 Quiet overnight market means more of the same listless narrow range
for us. The data calendar is empty and I can only assume everyone is
preparing for Christmas festivities already. The one news that caught my
eye was the reassurances offered by the real estate consultancy and
service provider, CBRE Philippines which said that the slowdown in the
real estate sector is due to shortage in skilled construction workers in
the country – not lack of demand. Developers are being weighed down
by lack of skilled manpower complement and this explains the
construction delays. Unfortunately, the same CBRE statement pointed to
the BPO sector as a key driver over the medium-term, and this tells us
that risks to BPO growth as a result of a Trump presidency is still largely
underpriced by the sector.
 The primary proxy for the BPO play is Megaworld since the company
reengineered away from the residential segment towards the more
recurring segment to drive growth. MEG has been focused on office and
retail segments and has turned itself more into a landlord to large BPOs.
This strategy has worked very well for the past 5-6 years but our sense
is that rental revenues will become increasingly distressed over the next
3-4 years. Even more problematic is the fact that MEG expanded its
investment portfolio by levering up and taking in more debt to finance
the office and retail leasable portfolio expansion. If recurring growth
slows down, the effect will be magnified by debt payments.
 YTD MEG is down -14.8% and down -34% from highs. Range support is
at 3.24 and while it can technical bounce back from oversold readings, I
remain fully convinced that we will see MEG below 3.11 next year.
 Anyway, I believe that everyday you observe market action brings you
one BOH
Copyright: more day
Society 2017 closer to understanding it. You don’t need to trade it to
learn by the way so don’t walk away.
BOH FLASH NOTE
Has buying losers this year worked?

 This year is probably the first time in a very long time that buying losers
fail to generate any meaningful return. It used to be that when leaders
topped out, one could safely get into laggards for value and they were
good for a technical bounce or two. While the year started out with
laggard names like SMC and PCOR rebounding strongly after a terrible
2015 performance, one would have been better off sticking with the
really strong ones like SECB, SMPH, AEV, and MPI if you wanted to
make money trading index names. You see, trying to bottom pick
laggard names like TEL, GLO, AGI, MER, and EMP has been the wrong
strategy.
 We computed the average percentage change of the leaders and

laggards YTD and we noted that the spread was around 3990 basis
points (even wider when the market was trading near all-time bubble
highs). So not only have leaders done remarkably well during upswing
to some extent the same leaders have been able to preserve gains
better while the sell-off in laggards even accelerated while the market
corrected the past three months. It’s hard to see if this trend will persist
in 2017 but if we go by first principles of technical analysis this trend will
likely persist.
 The story is a bit different in the non-index space where we saw a

complete reversal in fortune for this year’s darlings DD, X, MRSGI, and
IS. It is also ironic that dogs that like WEB, LIHC, DIZ, STI, and PPC are
the ones trading near highs going into the end of the year and are the
ones expected to continue to trend higher when we start all of this all
over again next year.
 So to answer the question about buying losers, it doesn’t pay to buy

index
Copyright: laggards
BOH Society 2017 but it is worth looking at dogs in small and micro space
given the tendency to mean revert and surprise.
Keep your guard up

 In case you haven’t noticed, the last three months have been
particularly difficult. Not only have we had to weather external shocks
from fears of a second Fed rate hike and uncertainties after Donald
Trump won the US elections, corporate earnings in 4Q16 have been a
disappointment. Portfolio capital have been flowing out since 3Q16
ahead of all of the mess, and this was reflected in the USDPHP, which
hit a high of 50.20 late last week. PSE data indicates that foreigners are
still net long Php12 billion YTD after hitting a high of Php60 billion not
too long ago. Whether there’s more selling behind the Php12 billion is
the real threat. At this point, my fear is that jitters will spillover to local
investors and trigger fund redemptions in 2017 especially if regional
markets buckle in the face of macro shocks so please keep your guard
up.
 In any case, we stated our case for differentiating opportunities in our

investable universe. We’re staying out of index stocks over the next 1-3
months. Our focus is on mining and we’re waiting until after the Fed
hike rates next week before we reinitiate positions. Commodity prices
look stretched and will likely consolidate over the next 3-4 weeks. The
Mines and Geosciences Bureau reported that metal mine production
slipped in 9M16 but this is widely expected since we did note that
production was being kept low because of poor metal prices globally.
We also had mining suspensions in 3Q16 thanks to Ms. Gina Lopez so
that contributed to the production slide.
 The other sector we’re keen on is gaming. Okada Manila is set to open
on 21 December and will be the third operating player in the
Entertainment City. We’ve been tracking the swing to profitability in
Solaire Resort and City of Dreams as well as modest growth in regional
gaming
Copyright: markets.
BOH Society 2017 The game changer for the gaming sector will be if
Chinese tourists pick up next year as it is widely expected. Not difficult
BOH GUIDE
FROM BACKTESTING TO LIVE TRADING

 We’re well aware about the expected slippage between live trading,
simulation trading, and back testing.
 When we back test signals, we simplify and assume prices are less noisy
than they actually are. We develop trading rules based on our
understanding of what has worked in the past and try to optimize these
rules to account for changes in market dynamics and then cross our
fingers that the tweaks are good enough.
 In simulation trading, we try to paper trade in real-time. We try to apply

our back tested rules, and try to see if we can mimic the success rate
under more realistic market conditions. We no longer assume that
trades are filled end-of-day, and we use benchmarks such as VWAP to
try to improve on our back tests by executing better than VWAP. At
some point, we become confident of the result and move on to the
hard part, which is to move on to live trading.
 In live trading, we start out with having a model portfolio and we

schedule how to complete our fill. Very quickly, we realize that market
dynamics are widely different from the simulative environment we’re
used to. Our emotions get in the way. Trading becomes noisier. We
start questioning the process. And everything we know about trading
gets unlearned.
 This isn’t always the case but it is the case for most. Unfortunately,
people pick-up the wrong lessons from this experience. Instead of
seeing the value of sticking to an investment process, people end up
saying that trading is hard and walk away.
Copyright:
Don’t walk
BOH Societyaway.
2017 Stick with the process and all will be well.
DOE TO DUMP FUEL MIX POLICY

 What caught my eye this morning is the news report that said that the
Department of Energy will abandon its fuel mix policy that sets aside
“quota” for each energy technology. Instead of the fuel mix policy that
limits sourcing of new power capacity to no more than 30% for coal,
30% for natural gas, 30% for renewables, and 10% from other sources
including diesel-fired plants. The policy mix will be more geared
towards 70% for baseload, 20% mid-merit, and 10% peaking power.
 This is a huge shift in policy and possibly for the worse since the move
clearly favors coal—at least in so far as Mother Nature is concerned. I
am looking very closely into this development given our bullish energy
theme for 2017 and beyond. Off-hand, this is definitely a positive for
Semirara Mining and Power Corporation, and explains resiliency and
strength despite poor market conditions. Technically, it’s trading above
the midpoint of the range so we’ll have to watch this trade closely from
hereon.

BOH FLASH NOTE
WHAT DOES EXPENSIVE PIZZA LOOK LIKE?

 We’ve been scratching our heads about PIZZA since we did our back of
the envelope calculations yesterday. We know it was just a straight
forward PER valuation analysis so it’s possible we missed something so
we decided to talk to some of our friends.
 Unfortunately, their findings were pretty much in-line with what we’ve
already said. That while it was plausible to assume that the market for
pizza is growing at a CAGR of +23%, it’s difficult to assume the same
earnings growth for Shakey’s. We conservatively assumed that 2017 and
2018 earnings will grow at a steady +10% but those we spoke were
even more bearish and assumed a high single digit earnings growth on
their forecasts. Our friends also took into account the impact of paying
down PIZZA’s debt using proceeds from the IPO but the reduction in
interest expense wasn’t good enough to improve bottom line numbers
over the next two years. What was clear in all the analyses, however, is
that PIZZA is operating in a highly competitive industry and competing
against quick service pizza chains like Greenwich, Yellow Cab, and the
other smaller pizza franchises.
 The other thing our friends didn’t like about this IPO is that 70% of the
proceeds will be pocketed by a Singaporean GIC. It tells us that this IPO
is more an exit than an actual fund raising exercise for growth. And
while the IPO is no longer being priced at the top end of the range, it’s
still one expensive offering.
 Anyway, word on the street is that the IPO is oversubscribed. And since
70% of the offering will be sold to foreigners, those we spoke with gave
this impression that foreigners are willing to pay a premium for
Shakey’s because of its franchise value as an international brand.
 Me, I’d rather buy 3M Pizza with its toasty crust!
BOH FLASH NOTE
ON SHAKEY’S PIZZA ASIA VENTURE’S IPO

 Shakey’s is the most popular pizza chain in the Philippines and a market
leader with a market share of 26.7% in chained full-service restaurants
and 57.7% in chained pizza full-service restaurants in 2015. The
Company is planning to raise Php3.96 billion with the company set to
issue primary shares of 104 million and the balance of 202 million
secondary shares to be taken up by the selling shareholder, Arran
Investments Private Limited. The IPO has an over-allotment option for
46 million shares to be taken up by the stabilizing agent, BDO Capital.
IPO proceeds of Php1.171 billion is intended for debt repayment, capex
related to expansion of in-house commissary, and working capital or
potential acquisitions.
 In 2015, PIZZA earned Php479.6 million so post money would be

Php0.27 centavos. Given an IPO price of Php11.26 that would imply a
41.8x PER trailing. Assuming three-year CAGR of 10%, forward EPS is at
0.296 centavos or 38.0x PER. The closest comparison is MAXS Group
whose trailing PER is 39.5x. The consumer sector is trading at 23.4x and
JFC, which is the largest consumer retail food company listed in the PSE
is trading at a forward PER of 34.9x.
 Conclusion: PIZZA is a Php20 billion company that will list near the high
end of the industry’s PER range of 39.5x. PIZZA will be trading at an 8%
premium to JFC’s forward PER of 34.9x. Growth is decent but in a bit of
a downtrend. Not sure if expansion of commissary or how much branch
expansions will improve growth prospects (i.e. bring it back to the high
teens). Again, from a straight forward PER analysis, it doesn’t look
attractive.
 Am I missing something?
BOH MODEL PORTFOLIO
30 November 2016 10:00 PM
MODEL PERFORMANCE REVIEW

Some Notes:
 The Philippine market fell by -8.4% this month thanks to the US
presidential election and disappointing 3Q16 earnings. The persistent
foreign selling since September continued to weigh our market down
and pushed us below critical support levels 6954/6795 this past two
weeks. It does not help that volume has dried up, thus forcing sellers to
hit bids at ever lower prices. But despite the downtrend, the market still
feels too complacent with most probably holding of selling in the hopes
of a year-end bounce. The Fed will meet this December and it’s highly
likely they’ll hike rates already. Brace for it.
 In any case, we’re happy to note that our model portfolio still managed
to outperform the PCOMP Index in November. While the PCOMP Index
fell -8.42%, the BOH Mincorr and BOH Equal Weight slid by -6.45% and
-6.57% or a +198bps and +185bps alpha, respectively, during the
period. Make no mistake, it’s still a sizable drawdown and models were
hit heavily by the corrections in MPI, EDC, BPI, and PCOR. I’m okay with
what happened to MPI, BPI, and PCOR but I really think including EDC
was a huge mistake and could easily been avoided. The biggest saving
grace came from SMC, which gained +4% during the period and
stabilized the port by a little bit. It’s also good we did not have exposure
in the TELCOs and industrials like JFC and MER otherwise the narrative
would have been different. Since inception, total model alphas are at
+533bps and +471bps, respectively.
 Anyway, we’re dropping EDC and FGEN and replacing them with DMC
and SCC. I don’t like the new names personally but they are the
strongest index names at the moment so we have no choice but to add
them.
29 November 2016 9:00 AM
PH TECHS
 Today we read BDO Chief Strategist Jonathan Ravelas tweet about the
risk of a 60% drop on the PCOMP Index if it breaks below 6,500
support. We’ve been watching the ongoing transition very closely and
we’re very much aware of this possibility. But instead of mouthing
doom and gloom, we prefer to focus on which areas we can make
money from. Our strategy is to just walk you through one support level
at a time and identify trade set-ups that make sense. Still, what if 6795
breaks?
 Well, that will get us to 6200/6400 next. A complete fill of the January
2016 gap near 6200 is extremely bearish and will lead to a dead cat
bounce to another lower high. Our preferred scenario is for our market
to hold support above 6400 and trade back above 6954. Again, how
plausible is Jonathan Ravalas’s 4000? Let me put it this way. Even if we
go to 4000, we will have something to trade at 5856 first, 5567 next,
5236 last. It’s only if we break below 5236 will our market stop giving us
something to trade as it waterfalls to 4000.
 Stock picking will play a huge role in 2017. We like mining, gaming,
energy cos selectively, and JAP. We don’t like large cap property names
as well as heavy-weights in the industrial complex. We’re okay with
banks but would rather wait at lower levels. For trades, focus on signals
provided by our quant models. All we ask is that you take a break below
6795 seriously.
 Just to give you an idea about the seriousness of 6795, our market
breadth data tells us that of the 137 names in our investment universe
87 (50%) are bearishly biased, 51 (29%) names are ranged bound, and
only 35 (205) are still in a bullish trend. For now, stay light and trade
selectively.
Copyright: BOH SocietyWe
2017 will give you an all clear sign once we see it 
COMMODITIES OUTLOOK 2017: BULLISH

 For 2017, we are bullish nickel, copper and oil on a 6-12 month basis.
We expect these commodities to outperform gold next year at least
until growth uncertainty pick up again. However, our bullish oil view is
premised on OPEC members striking a deal this 30 November to cut
output because our research shows that the global oil market will
continue to be oversupplied without an OPEC deal. According to our
sources, the betting for an OPEC deal is split 50:50. With such odds, it’ll
probably be better to be late and to focus on nickel and copper trades
instead.
 Our nickel view is working out well YTD with the prices rallying from
below US$10,000/t to a peak of around US$12,000/t. The run was
triggered because of Gina Lopez’s crackdown on nickel-mining in the
country with several mine closures in a short span of time. But the event
that drove global nickel to zoom higher was Trump’s election win and
his plans to boost infrastructure spending in the US. It helped that
China’s growth appears to have bottomed out after several quarters of
slowing growth. For 2016, average cash prices for nickel miners would
probably be around US$9,600 and this is expected to be around
US$12,000 in 2017.
 But the real story for us in the commodities space is copper. We were
quick to spot the shift in Copper’s trend bias to bullish. Fundamentally,
we know that copper cycles run for seven years and that this year will be
bear trend’s fifth year. We reckon that a lot of speculators were caught
by this early turn in copper outlook since copper was trading firmly
below US$2.00 in late October. Copper spot price is now at US$2.65 and
it’s highly likely we’ll see this at US$2.96 by the 1Q17. Longer term,
copper to be in a deficit by the end of the decade and we estimate it to
hit US$4.00
Copyright: by 2020.
BOH Society 2017
PH OUTLOOK 2017: CHALLENGING YEAR AHEAD

 Philippine stocks are on a four month slide and December doesn’t look like
it’ll be any different. If the PCOMP Index closes negative for the year, it will
be the first time since 2000 we’ll experience back to back loses. We’re on the
seventh year of this bull market and we’ve seen a steep increase in volatility
the past two years. At one point this year, we were among the darlings of
the investment community and then the sudden stop. Foreigners started to
off-load Philippine exposure. First we thought it was because of a probable
second rate hike and then as a hedge against the results of the US elections.
We may have had strong macro growth but the corporate earnings back
drop failed to deliver with key names in banking, property, and telco missing
expectations by a wide margin.
 Make no mistake, the exodus is not just happening here. It is an EM

phenomenon where portfolio flows are aggressively shifting out to return
back to the US with some going to China and Japan. Because of Trump, the
narrative has shifted dramatically. If this year EM were viewed as a place to
enjoy growth, the view now is that the growth differential between DM and
EM will narrow significantly because of the shift in policy focus from
monetary policy to fiscal policy. Under this environment, EM countries like
the Philippines will be left without foreign flows so it will be harder for to re-
rate over the next twelve months. We expect the PCOMP Index to generate
single digit return of around 5-6% in 2017.
 But not all is doom and gloom. Under such market conditions, our key
sector theme calls for mining, gaming, and small cap energy firms can thrive.
We believe we can generate 60-70% return in PH mining because of our
bullish outlook on commodities. Gaming will continue to turn its fortunes
around and it’ll be good for 30-40% return once we find a tradeable market
bottom. There will be special situation plays in the energy space and we’ll
discuss this in a separate piece. All you need to know at this point is that the
monster plays in 2017 and beyond will come from companies whose owners
are aspiring
Copyright: BOH Society to
2017be the next set of tycoons in the Philippines. 
PH TECHS
 Philippine stocks were once again the odd ball out with Asia enjoying a
solid equity session yesterday. The PCOMP Index was down for most of
the day and traded below critical level 6795 before catching a bid at the
close to end green at 6835 despite foreigners selling another Php1
billion plus. Foreigners are still net long Php15.5 billion YTD according
to PSE’s official data. Tonight we get the US Thanksgiving holiday so
we’ll be on our own until end of week. The good news is, we saw several
stocks put together intraday lows and some even managed to decouple
and outperform massively as the index approach oversold levels.
 The one true star over the past five days is WEB whose run was
triggered by speculation that it will reboot and eventually be allowed to
operate its online gaming business by end of the year under new
management. It’s still not a foregone conclusion since PAGCOR has yet
to officially reinstate its gaming license but in trading perception is
greater than reality. Technically, WEB has now closed the daily gap near
15.00. The top end of range is 16.85 to 19.85 so expect stiff resistance
around that area with buyers expected to step in and defend support
between 12.10 and 12.88.
 JAP is love and 2017 will see the return of JAP. Already we’re seeing key
JAP affiliated names like DIZ, ABG, and ORE come alive over the past
month and we believe this is just the accumulation part of the public.
We don’t think these names will runaway from us. ABG in fact disclosed
that it privately placed 100 million shares with Mr. Vittorio Paulo P. Lim
at a subscription price of Php1.00 versus the current market price of
Php26.00 so that should cap any further advance for now. Other known
stocks
Copyright: BOHaffiliated
Society 2017 with JAP are NI, GEO, SLI, NIKL, and CROWN.
PH TECHS
 Philippine stocks slid yesterday despite a green day for Asian equities.
Overnight we also saw US equities trend higher but our own EPHE US
Equity continued to fall on thin volume. We can’t read too much into
the correlations because markets are quieting down and thinning out.
We can continue to trade the market selectively on smaller size than
we’re used to but you need to manage your expectations on what you
can and cannot get out of the market. Normally, under ranged bound
conditions, you can hit and run for 7-11% and be happy with it. But
there are occasional oddballs in the small and micro cap segment where
you can still chase 14-28% or more if you manage to catch early
enough.
 Over the past five days, the strongest sectors have been property and
mining & oil. Let’s stay away from large cap property but I believe
there’s scope to trade the smaller ones. We’re range trading BEL.
There’s scope to range trade CEI until year end as well but not by much.
And We really like SLI despite its timing getting pushed back to 2017. In
mining and oil, we’re looking for a way to express our bullish copper
outlook. We’ve argued how AT can be ranged traded at lower levels
despite risk of dilution but preferably below 4.71 or as close to 4.38 as
possible. We said that PX is a copper mine that’s more known for its
gold output so let’s try to get some of that in case it slips below 8.99.
We’re starting to feel that our near-term bear call on oil is done and
over with. It looks like it’s now setting itself up for a bullish move in
2017. Time to watch PH oil stocks from hereon.
 Our key levels for the index are still 7094, 6954, and 6795. If the market
has bottomed
Copyright: BOH Society 2017 out, it must establish support quickly around this area. So
far, we’ve yet to see a catalyst that can bring us to 6600.
PH TECHS
 Philippine stocks slid yesterday despite a green day for Asian equities.
Overnight we also saw US equities trend higher but our own EPHE US
Equity continued to fall on thin volume. We can’t read too much into
the correlations because markets are quieting down and thinning out.
We can continue to trade the market selectively on smaller size than
we’re used to but you need to manage your expectations on what you
can and cannot get out of the market. Normally, under ranged bound
conditions, you can hit and run for 7-11% and be happy with it. But
there are occasional oddballs in the small and micro cap segment where
you can still chase 14-28% or more if you manage to catch early
enough.
 Over the past five days, the strongest sectors have been property and
mining & oil. Let’s stay away from large cap property but I believe
there’s scope to trade the smaller ones. We’re range trading BEL.
There’s scope to range trade CEI until year end as well but not by much.
And We really like SLI despite its timing getting pushed back to 2017. In
mining and oil, we’re looking for a way to express our bullish copper
outlook. We’ve argued how AT can be ranged traded at lower levels
despite risk of dilution but preferably below 4.71 or as close to 4.38 as
possible. We said that PX is a copper mine that’s more known for its
gold output so let’s try to get some of that in case it slips below 8.99.
We’re starting to feel that our near-term bear call on oil is done and
over with. It looks like it’s now setting itself up for a bullish move in
2017. Time to watch PH oil stocks from hereon.
 Our key levels for the index are still 7094, 6954, and 6795. If the market
has bottomed
Copyright: BOH Society 2017 out, it must establish support quickly around this area. So
far, we’ve yet to see a catalyst that can bring us to 6600.
PH TECHS
 This week is a shortened trading week for foreigners with US markets
closed on Thursday in observance of the Thanksgiving Holiday. But
even without the holiday, we fully expect volume to start thinning out
with funds winding down trading activity ahead of the Christmas break.
Unless we get a huge surprise from the Fed in December, the general
expectation is that they will hike rates despite unimpressive US growth
year-to-date. What is clear to us at this point is that our view of slowing
growth over the past year has been correct but we do believe we’ll have
to pivot and change this view for 2017.
 Our expectation now is that markets will start to increasingly price in

expectations of a substantial shift to fiscal policy from monetary policy
because of the change in leadership in the US. This shift is super
supportive of our bull market call on commodities and all things miners.
And even without Donald Trump winning in the US, our own
government plotted out a similar trajectory for the Philippines with the
Duterte administration expected to spend Php7 trillion for infrastructure
in the next 6 years. We know that China’s growth has bottomed out. We
believe that if China moves towards more regional integration and
completes the development of a New Silk Road that links trade routes
across Euroasia then that too would be bullish for regional growth.
 For Philippine stocks, all we know at this point is that we have a weekly
low in place with support between 6939 and 6954. We can trade this
market selectively because of the risk reward set-up. If we take out
7094, we get to test 7259. Get above 7259 and we retest 7400 area. It’s
a range trade because of the death cross signal expected this week. But
unless
Copyright: we break
BOH Society 2017 below the above cited support levels, we should be
okay.
BOH FLASH NOTE
In Search of the Bull Case for Atlas Mining

 Atlas Consolidated Mining Corp., disclosed that it will be refinancing US$500
million worth of advances and bonds in order to discharge existing debt
liabilities in full. Under the approved plan, refinancing will cover bonds due
in March 2017 amounting to US$300 million as well as advances made by
shareholders. The term of the new loan will be for seven years with an option
to pre-pay after five years. The loan will be subordinated to existing bank
creditors but warrants will be issued to incentivize investors to participate in
the transaction with an exercise price of Php4.3842.
 The issuance of the warrants is dilutive to existing shareholders who won’t

be eligible to the warrants. Right now, around 57% are non-publicly held
shares so it means that 43% of the issued common shares outstanding are
held by the investing public. The largest shareholders are SM Investments
Corporation and Alakor Corporation who owns 29.3% and 21.75% of the
company, respectively. The disclosure only said that warrants will be
attached to the loan as a sweetener. SMIC is the only savior we know about
so it’s safe to say they’ll be the ones to own the warrants.
 Assuming copper prices go up as expected over the next seven years, it’s
highly likely that SMIC exercises on the warrants for the entire US$300
million. This means they get an additional 2.99 billion shares which brings
total shareholdings to 3.6 billion shares. This will make SMIC the super
majority owner at 71% with an estimated blended cost of Php5.57 per share.
 Again, the issue here is dilution for minority shareholders. What happens
after SMIC exercises the warrants? Well, Alakor Corp.’s stake falls to 9% from
22% and the investing public who currently owns 42% will be left with 17%.
 Bottom line: Given that dilution is a certainty, there is no reason to buy.

Notwithstanding our bullish outlook for base metals for 2017 and
beyond, we believe that Atlas is more a trade than a buy and hold. At
leastBOH
Copyright: until
Societywe
2017 get more color about capacity, efficiency, and mineral
resources of Atlas Mining itself.

Take profits on PH miners for now

 We have had a good strong run in commodities the past three months
and this in turn has been very good for PH miners. So far, the biggest
surprise catalyst for our bull market call on mining has been Donald
Trump’s election as the new president of the US and the reflationist
narrative that picked up immediately after. I don’t know how long the
euphoria over PH miners can last without a correction especially in the
face of a super strong dollar and rising interest rates. Already, I am
seeing sharp pullbacks in the price of base and precious metals so that
should negative effects on the price of miners. This is not to say we’re
changing our bull market call for 2017—our forecast still sees another
50% upside of the sector. But we also realize that volume over the past
two days is no longer confirming the uptrend, and we’d much rather
you lock in gains for now. We’ll watch the reaction to a further
weakness in commodity prices today and in the coming days and see if
we can come back in with two hands before the end of the year.
 As for the rest of the market, all sectors are trying to carve out a weekly
tradeable low at the moment. After holding support above our line in
sand, the PCOMP Index managed to pull-off a two day run. Locals in
particular managed to front-run yesterday’s GDP release for 3Q16 which
showed the economy grew by 7.1 percent year-on-year. This headline
print is impressive considering that almost everyone else’s growth in the
region is slowing. But from a rate of change point of view, we don’t
think this is good enough. For PH stocks to be great again, we needed
to grow by more than 7.5%. Besides, we found it ironic to see the
economy grow at its fastest in 12 quarters at a time when corporate
earnings were at their slowest.
 We’ll have until month end to decide what to do about our market. For
now, watch how we react against the trend tail line. Support still at
PH TECHS
 Looking across Philippine stocks this morning, the largest moves the
past five days have come from LIHC, AT, STI, BLOOM, and NIKL. With
the exception of STI, these big movers are mining and gaming related
so we’re definitely right about the relevant theme to focus for the rest
of the year and next year. Volume for these names yesterday were a
little bit weaker than what’s needed to sustain the up move so you’ll
have to start adjusting stops or trimming some while it’s easy to do so.
The move in STI is possibly the restart of the uptrend because
yesterday’s 73.8 million shares was larger than three standard deviations
and it happened above the breakout point 0.79. I suggest you adjust
stop to 0.79 and pray it trades firmly above 0.82 today already.
Measured move for STI is still 1.02 this year with possible overshoot
next year.
 In global macro, the headline continues to be the vertical ascent in the

US dollar (DXY Index). This is the range set up we discussed that will
push the dollar markedly higher next year. It’s strange to see how the
market implied probability of a rate by the Fed this December drop and
yet the general consensus still says it will happen. You just don’t know
what to believe written anywhere these days because consensus writing
often reflects the crowd. As we’ve seen repeatedly this past year, the
crowd is always wrong and it pays to think differently from consensus.
At this point, it does not make sense for the Fed to hike rates. Not with
Donald Trump now the presumptive president of the United States.
 Locally, we’ll be getting the 3Q16 GDP report for the Philippines. We’re
being conditioned for a plus 7 percent growth despite weak corporate
earnings.
Copyright: Yesterday,
BOH Society 2017 the Philippine Statistics Agency also revised to 7
percent from 6.9 percent. At this point, we don’t believe a 7 percent
PH TECHS
 The local earnings season is fully underway and the results for 3Q16 so
far have mostly disappointed. Telcos PLDT and Globe for one have been
hit by lower than expected top line and bottom line results thanks to
cannibalization of SMS and voice and stiff industry competition. We saw
mixed results in properties with ALI, SMPH, and MEG reporting in-line
earnings results but were hounded by weaker than expected up-take.
Banks, on the other hand, which were among the first reported similarly
disappointed despite strong loans growth and continued growth in
non-interest income business segments as operating expenses were
largely kept unchecked. So far, the lone bright spot has been gaming
where Bloomberry, City of Dreams, and Resorts World Manila showed
sharp recoveries on improving gross gaming revenues and better win
rate.
 What does this all mean for Philippine stocks? We would argue that we
should brace for more volatility in 2017. It means that aside from
external headwinds posed by growth slowdown, rising interest rates,
and Donald Trump, we also have to contend with expensive market
valuations. We know we argued for the bull market run to extend in
2017 but now that we’re below 7094/6954, we’ll have to reassess the
timeline for new all-time highs and push this back by at least a year.
 What this also means is that more than ever this market will be a stock
picker’s market and that to make money we’ll have to focus on themes
like mining, gaming, and energy next year. It also means that
uncrowded non-index names will be in vogue but only after broad
market volatility subsides. Right now, the PCOMP Index looks oversold
and BOH
Copyright: likely setting
Society 2017 itself up for a bounce. Our line in sand is 6795 but if
we do rally again, the max we can probably do is 7180 for now.
PH TECHS
 We’ve had a few days to digest the possible ramifications of a Donald
Trump Presidency for the US and the rest of the world, and
unfortunately we still don’t know a lot what is in store for us. We don’t
know how much of what Trump said before becoming the president
were campaign rhetoric and which ones are set to be official policy. All
that is clear is that he wants to bring down corporate taxes, he wants to
get back foreign earnings held overseas, spend a lot of money on
infrastructure, and reshape the way the US conducted international
trade and provided defense overseas. Before Trump can push his
agenda, he’ll have to get Congress’s approval to increase the debt
ceiling. The Republicans control both houses of congress so that might
not be a problem.
 All of the above of course will push inflation expectations up, which is
bad for treasuries but mixed impact on the US dollar. Investors on the
other hand are expected to demand a higher risk premium in markets,
which is bad for risk assets but more specifically Emerging Markets. We
should brace ourselves for a long period without foreign inflows with
most expected to flow back to developed markets. In short, the powers
that be just don’t care about the 1 percent weighting of the Philippines
in the MSCI basket.
 Again, our key PCOMP Index levels are 6795/6954. We believe we’ll be
near-term oversold at the 6795 area but that any rally from here will still
likely be brief and bounce capped at 7093/7114 area. If we’re lucky, we
close the year near 7259. In any case, we still have to deal with the
possibility of a rate hike in December but odds are there will be no
moreBOHrate
Copyright: Societyhike
2017 this year amidst all the market uncertainty. We prefer
non-index stocks with volume. No change in our bullish call on mining.
STAY AWAY FROM INDEX STOCKS

 Leading up to the US election, we were wary about a Trump win but
continued to hold our baseline view that Hillary Clinton would come out
on top. We were right about base metals rallying sharply after the
elections but for all the wrong reasons. Instead of nickel and copper
selling off as a result of a Republican sweep in the United States, they
rallied sharply last week despite a strong dollar and a sell-off in US
treasuries. It was a good week for PH miners but bad for PH stocks and
everything Emerging Market. It truly is better to be lucky than good.
 Technically, we are now at the buy range we projected since the market
topped out at 8118. but there’s a lot about the Trump card that global
financial markets have yet to price in. There’s a lot we still don’t know
about Donald Trump’s policies we do not know about. All we know is
that, he’s a conservative with a Pro-American stance. Top of mind, this
puts the BPO sector’s growth at risk. While it’s unlikely that jobs will be
pulled immediately, four year projections will have to be revised
downward. Furthermore, the risk is that this could dampen discretionary
spending from this sector and this could hit retailers, mall operators,
property companies, and banks eventually.
 The PCOMP Index fell -3.5% week on week and the PASHR Index
declined -2.4%. With the exception of our PMINI Index which advanced
+2.7% for the week, all sector indices got crushed with PHLDG Index the
worst performer. Large cap GLO (-13.9%), AC (-9.5%), and GTCAP (-
8.7%) were the worst performing index stocks over the last five days
followed by RLC (-7.4%) and PCOR (-6.8%). Of these five names, we are
only interested in GLO and PCOR but we’re going to be choosy about
the levels to take on these trades.
Copyright:
Can BOH weSociety
break 2017 below 6954/6795? The short answer is, yes so let’s stay
away from INDEX STOCKS.
WHY ARE EMERGING MARKETS SELLING OFF?

 The biggest problem for emerging market investors at this point is the
repricing in US Treasury yields. Over the past two days, treasury yields
have moved higher across the curve as if to reflect higher inflation
expectations thanks to the shift in a reflationist view on Donald Trump.
We believe that weakness in emerging markets including the Philippines
will persist over the near-term as investors try to come to grips with
higher US rates, with everyone likely to lock-in gains from this year and
close their books on a high.
 While price action in Philippine equities have been relatively benign, we

are seeing stresses in the USDPHP as it hit an intraday high yesterday of
49.39. We believe there’s still scope for USDPHP to move higher and hit
50.00 and this should put more pressure on local equities. The bearish
bias on everything EM FX despite no new highs in the DXY Index is due
mainly to uncertainties over US policies than anything else. We believe
this could set up our PH stocks to test our buy range 6795 to 7093 area
so while you may increasingly read gloom and doom, let’s use the
opportunity to finally position our cash back into equities.
 In terms of sectors, let’s stick with our sector themes mining, gaming,
and energy on dips. Let’s stay away from Industrial and large cap
Property stocks. I remain bullish Philippine banks BPI, RCB, PNB, and
even BDO. I’m looking forward to picking up telcos on the final slide for
a trade. Companies like IMI, TUGS, and DMPL that earn in US dollars are
expected to benefit from the higher USDPHP. Let’s stay away from oil
stocks since US dollar up means down oil. So stay away from PCOR,
SHLPH, PXP, TAPET, and PPC. We like CEB under these conditions and
let’s BOH
Copyright: revisit
Society2GO.
2017
THE TRUMP WALL
This is what it’s going to look like. #LOL Found on Facebook. Used without permission.

 Price action in global equity markets over the past two days is something I
have not seen in all my years of trading. I was witness to the severe stresses
of the Great Financial Crisis of 2008-09 but never have I seen the Dow
futures markets drop 800 points only for the actual Dow to close 250 point
up on the same day. These are very interesting and challenging times for
anyone investing in financial markets all thanks to the changing political
dynamics in the US and everywhere else in the world.
 Overnight we also saw a sudden shift in commentary about a Donald Trump

presidency where initially he was viewed as a protectionist that would have
massively bearish implications to the rest of the world to one who would be
largely reflationist and therefore bullish for risk assets including
commodities. After all, he is planning to build a wall that would stretch
across the 1,989 miles border between the United States and Mexico. Such a
wall would hike the demand for cement, concrete, steel, and almost
everything construction related. The estimated cost is between US$15 billion
to US$25 billion and my golly wolly, it’s going to be awesome… #LOL
WHAT DO WE KNOW ABOUT TRUMP?

 John Mangun was right when he said that Donald Trump would take
the US presidency in an op-ed piece last week. Yesterday, we also saw
another significant thing come out of the unpredictable election: a
Republican sweep. The implications of the outcome of the election will
be analyzed to death over the next couple of weeks. All we know at this
point about his economic policies is that he will lower taxes, he will
pursue repatriation of American interests, he will close the loophole on
carried interest, and pursue a very pro-business, pro-American policy.
We understand that Trump also has a pro-fossil fuel bias and doesn’t
believe that climate change is real so say goodbye to mother earth.
Defense wins and healthcare will be restructured. Goodbye Obamacare.
Finally, banks stand to benefit from lesser regulation and there is this
belief that we will see the comeback of super large banks. It sucks.
 So what do we do from hereon? We trade the range. PCOMP key buy

zone for us is still 6954 to 7094. Overnight we saw US equities jump
close by more than 1.4% and ran counter to the volatile futures we saw
and negative reaction from Asia. Curiously, our own EPHE still did not
follow the green day in US equities and still closed down -4.02% on very
heavy volume, the heaviest volume at 1 million shares since June this
year. These are very difficult times but as long as we stick to our plan of
trading the range as long our market holds above 6954/7094 then all
will be well. If we close this week at 7201 or above 7259 then we
potentially have a low in the market with upside up to 7371. We’ll have
to close November above 7371 to set up a Xmas rally in December.
 Me, I still don’t like trading index names at the moment. If anything, I’d
much rather focus on PH nickel miners and buying gaming. I like TUGS.
I want us to revisit TECH and APC. CPG looks strong with key range
between
Copyright: 0.70
BOH Society 2017and 0.74. Above 0.74, CPG could go to 0.82 next.
INDEX PROXY BET FOR 2017: MPI

 Every year, we make it a point to have an index proxy. This year it was
SMPH, last year it was GTCAP, and the year before that it was GLO.
While we believe that SMPH will continue to outperform next year,
we’re also looking at MPI, which we believe will finally have its year in
2017.
 Metro Pacific is one stock that never participated in our seven year bull
market. And while the stock is quietly up +37.7% YTD, its performance
still fails in comparison to the kinds of runs we’ve seen from its direct
peer DMC. For years, the company has been hounded by investors’
concerns regarding funding issues for its infra related projects and
acquisitions. Every time MPI’s stock price moved near five pesos, the
company sold shares to raise funds. If my memory serves me right, it’s
only this year that it didn’t raise a single centavos, which explains how it
managed to outperform despite difficult market conditions.
 There are lot of things to look forward to. The company is still a utility
company whose profits are derived primarily from power, water, and
toll road businesses. Having said that, it is one of the few direct infra
play out there given its bid for regional airports PPP project, which MPI
was prequalified for in 2015. There is also the Connector Road project,
which the company won in September 2016, will be for the
construction, operation, and maintenance of an 8km 4-lane elevated
expressway that starts from C3 Road in Caloocan and connects to the
Metro Manila Skyway Stage 3. And these projects are expected to keep
MPI and give it story over the coming years.
 Conservatively, we’re looking at a technical target of Php9.32/9.65 an

upside of 30% plus but our big picture multi-year target is Php13.42.
The BOH
Copyright: highest fundamental target we’ve seen so far this year is Php8.10 so
Society 2017
the stock needs to re-rate next year and address all regulatory and
What Happens to Commos if Hillary Wins?

 Today’s the day the Americans head to the polls to vote for the next US
president. Our baseline view is for Hillary to take the White House
although we’ve been very mindful of the risk posed by a Trump win. We
already said that a lot of uncertainty will go away if Hillary becomes
president because it will mean economic continuity and we get to focus
on other things relevant to our investment decisions. Global equity
markets jumped overnight after the FBI cleared Ms. Clinton from any
wrong doing related to the latest batch of leaked emails. We’re no
experts on US politics and we don’t really care who wins. We’ve already
outlined how markets could turn negative if Trump wins. But given our
baseline view, we’d like to outline for you what we think will happen to
commodities if Hillary wins. After all, it’s all about our super bullish call
on PH Miners for BOH Society in 2017.
 Gold will likely stay ranged bound between $1260 and $1360 over the
next three months under a Clinton presidency. Unlike with Trump,
Clinton is expected to pursue increased trade relations and therefore
reduce tensions globally. While her dovish slant will provide gold a
natural floor, gold is unlikely to break above $1360 unless we see the
US enter a recession. Gold would love to see Trump win though since
that could easily send it by 10% up to $1430 but that’s not what we’re
hoping for. At least not yet since we’re super focused on nickel.
 Yesterday, we saw LME Nickel jump US$10500 early in the morning to

US$11000 by the time our market closed. This morning, it’s trading at
US$11202 and looks to be headed higher. A Clinton win would be
bullish for nickel and other base metals, and we expect a knee-jerk rally
to US$11760 or another 5% up. Nickel could end this year at US$11460
on a Clinton win based on liberal/dovish policies and less uncertainty.
For 2017, the key catalyst will be mending of ties between US and China
IS IT ‘TRUMP ON’ OR ‘TRUMP OFF’?

 The US presidential elections is on Tuesday, which means we only get to
react to the unexpected on Wednesday morning. As of this writing, we
have the establishment candidate Hillary Clinton leading in most US
polls but what is clear the past few days is that the populist candidate
Donald Trump has been able to narrow the gap. A win by Hillary would
mean a continuation of Barrack Obama’s policies whereas a Trump win
will mean a significant shift in mindset on US fiscal policy.
 A Trump win will mean less infrastructure spending and big tax
reductions. A Trump win will mean tighter monetary policy (stronger
dollar, higher interest rates) at a time when the US economy is slowing.
Finally, a Trump win will mean a more isolationist United States of
America, at a time when global growth and trade is sputtering.
Whatever the outcome is on Tuesday, we get to move on from all this
uncertainty and focus things that really matter to us which is the third
quarter earnings for Philippine stocks. We shift back focus to the Fed in
December when they hike short-term interest rates.
 In the meantime, our market hit a near-term bottom after filling the
post-May election gap on the daily chart at 7,133. Gaming stocks done
remarkably during red days so it’s not a surprise they outperformed
during the rebound. We also saw badly battered names like GTCAP,
MEG, and MBT mount a two day jump. The technical in these names are
still decidedly bearish so any opportunity to sell at higher levels should
be taken without second thoughts. I’m not keen on taking on index
name trades but I am very much interested in what’s happening in mid
cap names like MWC, PLC, BEL, and NIKL to name a few. Micro caps
haveBOH
Copyright: interesting
Society 2017 range trade candidates too in ABA, CEI, MRC, and PA.
PH TECHS
 US election risk is creating a lot of volatility across global equity
markets. Asset prices are not just falling here in the Philippines but
admittedly we have fallen by more than most after outperforming
everyone else this year. There’s increased chatter that a possible Donald
Trump win is pushing investors out of risk assets and into safe-haven
assets. Right now, US treasuries are doing well, gold is doing well,
traditional safe-haven currencies like the Swiss franc and the Japanese
yen are flying high. Our good friend John Mangun even wrote a piece
citing the USC Dornsife / LATimes poll that pointed to a Trump win and
argued that should equity prices fall as a result we should buy into the
market. And we completely agree.
 In our experience, political risks have little to do with market dynamics.

And when they have a negative impact of financial markets, the effects
are brief and are quickly priced in with snapbacks almost guaranteed.
Now it doesn’t mean we ignore said risks in fact we’ve been super
focused on risks and have opted for the safe haven of cash ever since
the market topped out in August. But now that risks reward is becoming
favorable to us, we should gradually increase our exposure and trade
the index range anew.
 Now not all stocks will bottom out at the same time. Some will bottom
out earlier than the index. Some won’t find support until after the index
has rallied. In the kind of downtrend we’ve had, we’ve argued that you
focus on names like X, MRSGI, TEL, and GLO to name some of the
more battered ones. We’re also saying focus on themes like mining,
gaming, and special situation plays that can attract volume and or flows
and move differently from the broad market. There are plenty of trading
opportunities left this year and you really should take them as they
PH TECHS
 Global equities were down sharply yesterday ahead of the Fed
announcement. As widely expected, the FOMC decided to stay put with
only two members dissenting in favor of a rate hike. The accompanying
tone of the statement hinted a possible rate hike at the December
FOMC meeting but there’s clearly no guarantee. On Friday we will have
the official employment report in the US and consensus is for a 150k
increase in total non-farm payrolls in October. The market focus now to
the US Presidential Election race next week and all indications still point
to a Clinton win over Trump.
 For PH stocks, the sell-off was compounded bank earnings as both BDO
and BPI followed the disappointing print from MBT the other day. BDO
reported a 10% yoy growth in net income of Php19.3 billion, which was
slightly behind expectations. The main drag was a jump in operating
expenses by 29% yoy thanks to the consolidation of One Network Bank
and BDO Life Insurance. On the other hand, BPI actually had a solid
print with net income growing 26% yoy to Php17.4 billion and was the
best print among peer banks. The main driver was growth in non-
interest income, which jumped +24% yoy. Generally, it was a tough
3Q16 for banks and the sector slumped -3.2% for the day yesterday.
 Over the past three months, our top sector picks have been Mining &
Oil, Financials, and Conglos. We are thinking of dropping Financials for
now in favor of Services (telco and gaming) but still waiting for the
waterfall slide in TEL and GLO whose dividend yields are becoming
attractive finally. We are not there yet but it’s coming. As for gaming,
the Chinese tourism theme will be a major one next year. We are
eagerly
Copyright: waiting
BOH Society 2017 for a pullback in MCP, BLOOM, and PLC.
31 October 2016 8:30 PM
What you missed this week from BOH…

 Below are just some of the reports we've published for BOH members
since we've been back from our break. PH 3Q16 earnings is underway
and it's absolutely crucial that we do well otherwise our scenario of a
trip towards 7094 will materialize. We're not optimistic about our
prospects and we're concerned that Meralco's and Metrobank's dismal
9M16 result might be the tip of the iceberg. Aboitiz Power and Aboitiz
Equity Ventures did beat expectations but no one really cares about
these trades anyway so we’ll continue to ignore them for now.
 Having what this means is that we should stay away from large cap
stocks for now. But as long as our market is above 6954, there will be
plenty of scope to trade non-index names in the mid, small, and micro
cap space.
 To review the reports, including the monthly portfolio rebalancing of

the BOH model portfolio (index only), log into SLACK. Other technical
reports you should be interested in are:
 COSCO Capital: A Trade for 2017

 Megawide Construction: Treasury sale @ 14.22/share is that it?
 What levels to buy MER, GLO, and TEL?
 What do we think of gaming?
 Charting Show Replay: What do we know about MRC Allied’s
chart?

25 October 2016 8:30 AM
PH TELCOS: BEARISH OUTLOOK BUT...

 We’ve kept you out of the big telco trades all year this year and not just
because we don’t like the charts. Fundamentally we know that it’s a
mature, highly competitive industry that’s facing ever higher capex
outlays in order to expand and upgrade network and fiber
infrastructure. With interest rates expected to rise moving forward,
there is a real risk that investors like pension funds who turned to TEL
and GLO for yield the past ten years will be force to liquidate positions
in the face of potentially declining dividends. Yesterday, Fitch ratings
downgraded the credit outlook of the PH telco industry because they
estimate that generating positive free cash would be challenging over
the next two years precisely because of the above reasons. This is a
trend that’s all too familiar across telcos in the region so it’s not just TEL
and GLO that’s facing said headwinds.
 Technically, we’ve already argued that both are setting up for a last leg
down, and the catalyst will probably be 3Q16 earnings in November.
For TEL, we expect it to move below 1547 all the way to 1380/1456 area
with overshoot risk estimated at 1292. We’re buyers for a trade at those
levels. GLO is equally tricky and we expect it to slide below 1782 with
measured move between 1540/1655 with stop below 1430. We are
bearish TELCOS but we are going to trade it. Let’s differentiate between
having a bearish view and opportunistically trading around the trading
range.
 Our outlook for the PCOMP Index has not changed. We’ve warned you
extensively from buying aggressively into this “hammer” monthly
candlestick. We’ve seen this type of “reversal” set up in 2015 and it did
not work
Copyright: well
BOH Society 2017for anyone who bought into the “hammer.”
21 October 2016 8:30 AM
CHINESE TOURISTS
 President Duterte just finished his 4-day state visit to China and the key
takeaway is that we’ll have increased bilateral relations with the Chinese.
Among the bilateral agreements signed between the Philippines and
China, those that struck us as having the most net benefit for our
economy are in the areas of infrastructure, tourism, and trade. Some
US$13.5 billion worth of deals is expected to be signed. However, we
did see on the news yesterday that the two parties set aside the issue
over claims in the West Philippine Sea / South China Sea for now.
 The low lying fruit with the most immediate impact is on tourism. China
announced that it was lifting its travel advisory to its citizens against
traveling to the Philippines. While China accounts for the third largest
market of tourists for the Philippines, within the Southeast Asian region,
we only capture around 3 percent of the Chinese tourists. The regional
leader, Thailand, accounts for 30 percent of arrivals so the lifting of the
travel advisory can be a game changer for us.
 In terms of market impact, the direct beneficiary of more tourists are

hotel and gaming companies. Investors are now making a bet the
locators at the Entertainment City will be able to capture bulk of these
Chinese tourists. We’ve been tracking the strength of gaming stocks
over the past five days and key leader has been MCP followed by LR
and BLOOM. Technically, we’re still waiting for better levels but we’re
fairly confident that this gaming theme will persist over the next 1-3
years and finally deliver on its promise after disappoint us over the past
three years.

20 October 2016 8:30 AM
PH TECHS
 Philippine stocks had a huge second day run yesterday as optimism
over strengthening relations with China following President Duterte’s
state visit went into overdrive. The release of Chinese Q3 GDP data,
which showed the economy grow at a 6.7% y/y rate was certainly a plus
and affirmed that China has sidestepped its rough patch and is now
ahead of the US in terms of the business cycle. Last night’s softish US
CPI data validated this view, and capped US rates and yields as well as
the US dollar. In short, US dollar/rates down, risk-on everywhere.
 Technically, the two day push altered PH technical landscape markedly.

The PCOMP Index is testing the 50 day moving average and the push
above 7643 broke the triangle area underneath the downtrend line that
we outlined previously. If we can stay above 7715, we probably have
scope to rally and test and close the weekly gap at 7806 so that’s the
next key level we should watch out for. Once we top out, and we will
top out anywhere between 7806 and 7870, we will have to retest 7564
area and establish a higher low in order to set-up the base for the Q1
2017.
 Is there no more downside risk? In the near-term, downside risk is

capped again by 7564 and 7485. Will this market runaway from us? It
won’t with max upside estimated at 7994 (weekly trend tail line). As you
should all know by now, how we fair from hereon will depend on
foreign flows. Yesterday’s Php1 billion plus net inflow is an okay start
but we’ll roughly need 21 days straight of net inflow to know we’ll get
another 42 days more of short covering. For now, let’s take it one day at
a time. Let’s see if we get five straight days of foreign inflows.
19 October 2016 8:30 AM
PH TECHS
 Yesterday’s pause in the downtrend was helped by oversold technical
readings but also by a shift in investor sentiment on Philippine growth
prospects. Instead of focusing on just global macro stuff, which
everyone has been obsessing over since September, the focus turned to
local drivers. On the one hand, we have things to look forward to with
China thanks to a shift in foreign policy by the Duterte Administration.
While the long-term end-game with China is unclear, the short-term
benefits of increased bi-lateral trade and foreign direct investments are
undeniable.
 On the other hand, Moody’s affirmed our investment grade rating of

Baa2 yesterday citing sound economic and fiscal fundamentals despite
rising political risks. We believe that said political risks are overblown,
and are probably just propaganda. If anything, we’re more concerned
about fiscal management, which is an area that can deteriorate quickly
because of unfunded spending programs. But this is a conversation we
can set aside for next year.
 The top performers over the past month are WEB, FNI, PXP, STI, and
ALT. Of the five, we only like FNI, PXP, and STI. WEB is in a range and
will have to set up a higher low and ALT is too volatile to trade and
properly risk manage. We like TUGS. We said sell MRC for now and
watch the range transition for a higher low set up. VITA is still a trade
we’d like people to avoid.
 For index investors, the leaders over the past month are SCC, DMC, MPI,
SM, BOH
Copyright: andSociety
EMP. 2017Of the five, I’m only interested in MPI and SM.
18 October 2016 8:30 AM
PH TECHS
DXY Index breakout underway!!! PCOMP Index holding DTR support but still behind TTL…
Source: Trading View Source: Trading View

 PH stocks failed to follow-through on Monday’s bounce with Industrial
and Property lower despite early session bullishness in Financial and
Conglos. Service was similarly a sore point no thanks to PLDT which is
threatening to slide below near-term support area. We also noted a
key reversal in Bloomberry, which as we discussed previously, can set-
up the last leg down that will allow us to finally buy gaming at lower
levels.
 Global data was relatively light so all eyes have been on President
Duterte’s trip to China. The state visit alone resulted in a big push in
PXP, as it follow up with a second day volume buzz and pushed above
4.04. We believe PXP is still just a range trade at this point and will
likely hesitate around 4.38 area. From a momentum point of view, it
really needs to hold above 3.90, olats if below 3.78.
 The big winner, however, was Cyber Bay after the company reached a
deal with the Philippine Reclamation Authority over its Php1.03 billion
claim for costs and losses incurred from a suspended Manila Bay
project. Technically, it’s in a wide range between 0.61 and 0.69. Olats
only if below 0.61/0.57 area.
17 October 2016 8:30 AM
PRESIDENT D30 IS GOING TO CHINA

 We hinted a few weeks back that China is going to play a huge theme
for the Philippines in the current administration. We argued that Philex
Petroleum is going to be a name to watch in light of a possible
resolution of the impasse in the contested Reed Bank (Recto Bank) in
the West Philippine Sea. On the other hand, Agriculture Inc., has been
quick to pounce on the improving ties with China after it purchased a
stake in rice and fruit trader, Zongshan Fucang Trade Co., Ltd., this past
week. The move is seen as hugely accretive as it opens up the Chinese
market for Philippine agriculture producers. We believe we are still in
the very early stages of increased commercial ties with China.
 This week President Duterte will be flying out to do a series of state

visits, and his first stop will be to China. The Bizz Buzz article today
cites around 400 plus business men will be joining the trip mainland
China, which will include captains of industries like Lance Gokongwei,
Ramon Ang, Hans Sy, Manny Pangilinan, Zobel de Ayala, and Ernest
Cu. The article also noted that Edgar Sia, Tony Tancaktiong, Lucio Tan,
William Tieng, Sabin Aboitiz and George Barcelono to be among those
who will be part of the delegation.
 The key theme for this trip will be to get more Chinese investments to
the Philippines, especially in the area of infrastructure and transport
where the Chinese have some expertise. Trade will similarly be an area
of interest. Right now, China is our third largest trading partner next to
Japan and the US and accounts for 11% of total exports.

BOH FLASH NOTE
14 October 2016 3:00PM
GUEST POST: SHELL PETROLEUM IPO

 Pilipinas Shell Petroleum Corp., is scheduled to IPO on 10 November and will raise
US$629 million for this listing. The company will sell this at Php67 per share where
330 million will be on offer. Of the 330 million shares, only 30 million will be new
common shares with the rest secondary shares by selling shareholders, Shell
Overseas Investments B.V., The Insular Life Assurance Company, Ltd., and
Spathodea Campanulata. The post IPO public float will be around 20% to 25%,
which our barber friends say is small enough to negate the issue about foreigners
exiting from the company.
 Shell has a network of 966 branded retail service stations that offers fuel-based
products, lubricants, and non-fuel products and services. All things considered,
Shall has a better station efficiency score of 1.9x versus 0.9x for competitor Petron
and the highest average annual throughput per retail service station in the
Philippines of 3.1 million liters in 2015 versus the industry average of 1.8 million
liters per year. Furthermore, Shell has the highest marketing margin in the region
thanks to the deregulated market that allows retailers to pass on FX and crude oil
price volatility to consumers on a weekly basis. We understand that margins will
similarly be supported by higher premium fuels mix by 2020 where the company
intends to hike the mx from 25% to 40%.
 The key risk for any oil player is oil price volatility. Maintaining 40 days inventory
can readily be felt and make things unpredictable despite hedges. But given our
outlook on global crude oil for 2017 and beyond, the worst looks behind us. Finally,
the retroactive back taxes will likely drag earnings for 3-5 years if the SC rules on
this with finality.
 EV/EBITDA is at 8.9x at Php67 per share, we estimate fair value at Php77 per share.
Dividend yield is around 5%, and should provide some support to the share price.
14 October 2016 8:30 AM
WHY WE ARE BULLISH

Positive and Negative Divergences
Symbol 5D % Change 1M % Change
BLOOM +6.0% -4.8%
MER -6.8% -7.6%
ICT -8.6% -5.7%
RLC -11.2% -3.8%
MEG -12.0% -10.7%

 In July we wrote about a possible pullback to 7564 and then argued
that if we break below 7485 it was possible we were headed to 7093
next. The PCOMP Index is now at 7312 with next known support at
7259. We are sticking to the view that if we successfully hold support
at 6954 then we can remain bullish PH equities over the next 3 to 6
months. Right now investor anxiety is high, which historically is
contrarian bullish. In other words, we are in a risk-off environment and
this too shall pass. We also believe that the Fed will continue to be
equity friendly.
 At this point, BLOOM has resisted a sell-off but is still down over 21
days. We think it’s premature to position in gaming but we are getting
bullish gaming for next year. Given a choice between BLOOM and
MCP, I would prioritize MCP because the breakdown looks clearer and
downside more measurable. You see, BLOOM is resilient but moving
inside a very ugly range, and we should always choose prettier charts
over ugly ones when trading.
13 October 2016 8:30 AM
PH TECH
PCOMP Index breakdown underway but it still won’t waterfall…

 PCOMP Index broke below 7485 support finally yesterday but we have
yet to see a full blown panic in the market. Short-term it is probing
support at 7412 and a break below will mean a test of gap support
around the 7365 area, and after that we get 7227 next.
 The problem with this slow motion downturn is that we don’t get to
flush out those whose averages are above 7830, and we have 7324
buyers who are likely to defend this area no matter what.
 3Q16 earnings season is coming up and this will likely shift people’s
attention domestically from the global macro stuff we’ve been
tracking.
12 October 2016 8:30 AM
VOLATILITY IS (ALMOST) HERE

DXY Index on the cusp of breaking out! USDPHP set to hit Php50.00 per dollar this November.
Source: Trading View Source: Trading View

 US stocks fell be more than 1% overnight. We did not see any flight to
safety into US treasuries as 10y US yields ticked higher by four basis
points. To some extent, the weakness is probably just a catch up to
what the risk-off mood on Monday when the US market was closed
but we cannot discount the fact that investors are very nervous.
Tonight we are getting the FOMC minutes and this will be the next
major driver, and our sense is that if US yields edges sharply higher,
this will trigger further risk aversion this month.
 Yesterday, we saw gaming stocks come alive with BLOOM leading

followed by MCP and PLC. While the move was impressive, we believe
this is false strength and that we are going to be able to buy these
names cheaper over the next couple of weeks. We are turning bullish
gaming for the first time this year but any positioning we do will
already be for next year. As such, we’d much rather buy red than get
into the sector on green.
 PCOMP support 7485 will be put to test today. Take that out and we’ll
get 7412 next.
11 October 2016 9:30 AM
PH TECHS
BLOOM and SMPH keeping PCOMP afloat Volatility all set to explode. Wait for it…
BLOOM
SMPH
Volatility at third
lowest level
GLO since April…
RLC
Source: BOH Society Source: BOH Society

 There’s very little to about the market that we haven’t already said. It’s
in a tight range and above the trend tail line but it looks set to resume
downtrend anytime now. Overnight markets were closed thanks to
Columbus day, but with initial reports coming out giving Donald
Trump the win in the second presidential debate, we could see Asia
price this in negatively. The key focus this week, however, will be the
FOMC Minutes on Wednesday, which will show us how close we were
to seeing a rate hike last September. Fed Co-Chair Fischer has already
hinted that it was a very close call.
 In any case, our market internals remain super weak with BLOOM and
SMPH being the only index names posting decent gains in two days.
RLC dragged together with GLO, MEG, and ICT with TEL rounding out
the bearish mood for the market. Pray we get a break below 7485 first,
7412 last soon.
 Shakey’s Pizza Asia Ventures Inc., is planning to IPO this year and raise
up to Php5.5 billion at Php15.58 per share. Proceeds will be intended
for BOH
Copyright: expanding
Society 2017 the group’s commissary, working capital, potential
acquisition, and repayment of debt.
07 October 2016 9:21 PM
ECB TO TAPER?
DXY Index forming a cup and handle structure. MSCI EM trading near highs and all set to breakout higher.

 The biggest surprise to us this past week is the note from the ECB
meeting from last 8 September hinting there will be no further asset
purchases. In fact, the minutes further showed that the ECB is planning
to taper soon as it repeatedly referred to “the increasing scarcity of
some bonds”, as well as the impact of monetary policy was having on
bank profitability which led to soft bank equity prices. The general
chatter now is how an ECB tapering could lead to a European ‘taper
tantrum’ that could push the Euro sharply higher.
 Why is this important to us? Well, an ECB taper removes liquidity, and
any reduction in global financial market liquidity is bad for risk assets.
It means that treasury yields of European assets could start to steepen.
If the ECB is more hawkish at the margin, it could mean a reprieve
from the US dollar up we are seeing now. The DXY Index is at 96.68
and threatening to breakout, and unless the ECB taper caps the US
dollar from further strengthening, we’ll continue to see weakness in
commodities. My worry is that it spills over to Emerging Market
equities.
BOH FLASH NOTE
06 October 2016 3:00 PM
PH TELCOS: FROM BAD TO WORSE

GLO broke below midpoint of range, set to test 1782. TEL free fall underway, interesting below 1547!

 Both Globe and PLDT are in a steady downtrend, and whose trend
have now gone from bad to worse. Neither one looks anywhere near
significant support. Globe for instance only broke midpoint support at
2025 yesterday whereas PLDT is now trading at new 52-week lows and
looks to be headed markedly lower.
 The culprit? The Office of the Solicitor General (OSG) has taken the
side of the Philippine Competition Commission (PCC), and has filed a
note with the sixth division of the Court of Appeals arguing that the
telco deal between TEL/GLO and SMC did not receive prior approval
from the PCC. The OSG hinted it would go after the telcos for pushing
forward with the transaction.
 Technically, between the two telco pairs, it would seem that GLO
would be easier to trade given the multi-month trading range
between 1540 and 2510. Having said that, TEL is in a freefall and will in
all likelihood hit support level 1380/1456 first. We firmly believe that
TEL and
Copyright: GLO2017
BOH Society will be tradeable at the end of this slide.

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BOH DAILY MARKET SCRIPT

27 September 2017 8:15 AM

BULLISH SMALL BANKS: M&A THEME

 Yesterday, we read a business news report saying that the Philippine

Copyright: BOH Society 2017

 Locally, worst hit is the industrial sector (-2.4%) followed by service (-

 To add to the bearish tone, the property sector is succumbing to the

Bull Market in Mining (& Oil) in 2018?

 While we struggle to reconcile the resiliency of the market to stay near

EDC Tender Offer Disclosure

 Nitong nakaraang sampung taon, ang naging presyuhan para sa mga

WHAT ARE POGOS?

 At the moment, PAGCOR has already issued 44 POGO licenses. Majority

Banks to continue leading the way

 The shift in leadership to is a very good development since it gives legs

 By our time estimate, PNB will be in everyone’s radar again by end of

2Q17 Review and What to Expect in 3Q17

 Our Xurpas trade looks extremely attractive and as long as it stays

VOLATILITY IS DOWN, BIG MOVE AHEAD

 For our market, all we know is that RISK-REWARD isn’t attractive. We

 A MOMENTUM-DRIVEN WEIGHTING model constructs a portfolio

 If you haven’t had a chance to use our MOMENTUM-DRIVEN

BIGGEST RANK SCORE MOVERS – 1 MONTH

Copyright: BOH Society 2017

STILL BULLISH OIL

Sec. Gina Lopez out

BUY X, TARGET 13.61

 Xurpas is up +10.37% YTD and is in a price correction ever since it

 Trading bottom pickers is advantageous if the price correction is orderly

Expression: Buy X as close to 8.21; stop below 8.00.

 Alternatively, those who aren’t as well-versed bottom picking, your best

Our Thought Process In Portfolio Design

 Still, there can be some challenges to cloning / replicating our model

 As all of you become more experienced, we will be able to explore how

we’re just getting started.

STILL BEARISH ON PH STOCKS

 First, Philippine stocks lagged developed and emerging markets in

 Fundamentally, we know that passage of the Comprehensive Tax

The Path to Cloning a Model Portfolio

Copyright: BOH Society 2017

BUY CEB, INITIAL TARGET 127.24

 The official DOT stat in 2016 estimates a total of 6 million tourist

Expression: Buy CEB between 94.12 and 102.25; stop

 Year-to-date, the strongest performers are Services and Financials

 Abroad, there appears to be no major event risks on the horizon. Last

Investing in Stocks with the Highest

 Since we launched our BOH MOMENTUM MODEL PORTFOLIO last 31

BUY PCOR, INITIAL TARGET 11.14

Expression: Buy PCOR near 8.88/9.07; stop below 8.82

 Today is WLCON’s listing date. PCOMP Index support still at 7213.

 Of the three, GLO is the most efficiently trending name so we prefer

ON WILCON DEPOT INC.’S IPO

 Wilcon is a leader among large retailers in the home improvement

 The company is planning to rollout 29 stores in the next 5 years and is

BUY XURPAS, INITIAL TARGET 11.46

 We believe that once uncertainty over growth is out of the way,

Expression: Buy Xurpas near 8.76

PLDT 2016 EARNINGS IN-LINE W/ STREET ESTIMATES

useless below 1292.

BUY SEMICONS IMI AND PSPC, TARGET 8.03 AND 2.39

 We turned bullish semicon industry mid 2016 when we spotted a bullish

Expression: Now is a good time to buy semicons

A MARKET CORRECTION IS COMING

#BOHMOM: February 2017 Review