It is time once again for the semi annual re-composition of the Philippine’s main index, the PSEi. On February 22, 2017, the Exchange announced that Puregold Price Club, Inc. (PGOLD) will be replacing Emperador Inc. (EMP) in the 30-company index effective March 13, 2017.
This means that we can expect the price of PGOLD to increase leading up to March 13 (Monday) as investment funds try to rebalance their portfolios to add the counter while dumping EMP. Why? Due to the restrictions set our by the funds’ Investment Policy Statement (IPS) where they are only allowed to invest in certain indexes.
As of February 22, PGOLD closed at P46, up 3.6% a day after the announcement with an intraday high of P47.3 (up by 6.53%). EMP, meanwhile, closed 1.83% lower to P6.97.
Our short term strategy for this development is to open a long position on PGOLD now and fully liquidate 2 to 3 days prior to March 13 for a possibility of at least 10% gain. We would have short EMP if that was allowed in PSEi.
COL has a target price of P51 for PGOLD while average target price as per PinoyInvestor is P48.64, which still represent a decent 5.22%-10.87% upside from February 22’s close in case the price movement of the counter deviated from our expected outcome.
I will leave you once again with the most recent reserve list for possible ideas on the next re-composition announcement in August (note: PGOLD was on the prior reserve list). Read the full disclosure HERE.