Philippine Stock Market Commentary: January 18, 2005: Where's the Rout?

Where’s the Rout?

Yesterday I read news accounts that some analysts predicted substantial declines in today’s domestic equity market activities following S & P’s downgrade. Because the downgrade talks have been floated in the market since the middle of last year, I was skeptical of any major violent reactions in today’s market activities despite yesterday’s downgrade. This is simply because to my understanding financial markets function as discounting mechanisms which factors in future probabilities rather than the present developments. The downgrades were digested as part of the probabilities which obviously did occur, was mainly discounted, hence the soft decline. If it came as a surprise then the market would have reacted violently. But rather, it would seem that based on today’s activities, the local market simply found a fundamental reason to profit take considering that Phisix had a lofty three day 4.9% advance.

Now browsing over at the Bloomberg’s website, it can be noted that Asia’s market has predominantly been in the red today, which was primarily blamed on rising energy or particularly crude oil prices, of course except the Philippines. In addition while the Peso climbed significantly during the past few days, today’s fall will likewise be imputed on the downgrades, from which again I would dissent. The Peso has tracked the movements of the Japanese Yen in line with region for the past few days. Today’s decline is NOT an isolated move but rather a regional one considering that the Japanese yen after reaching a 5 year high are falling alongside all Asian currencies except for the New Zealand Dollar and the Australian dollar, as of this writing, and to pegged currencies as the Malaysia’s ringgit.

The logical repercussions from a downgrade would be that foreign money to refrain or withdraw from investing in the local market, which doesn’t seem to be the case. Today’s market showed that with the substantial share of net foreign participation to cumulative Peso turnover at 48.8%, foreign money STILL registered a net buying of P 58.8 million. Moreover, looking at the market breadth we note that advancing issues trumped declining issues by 61 to 39. These positive data doesn’t speak of a downgrade concern in spite of Phisix’s .2% decline, although it does look more like a profit taking in the guise of a downgrade pretext. As a saying goes, “If it walks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” So where’s the rout?