King Kong Versus Godzilla at the PSE; Where Politics Trumps Markets

The seeming resilience of the Philippine equity assets melted away today, despite signs of recuperating global markets. This has been premised mostly on 2 issues; namely PLDT and Meralco which got crushed today, -11.66% and -14.59% respectively.

And because the two issues comprised about 34% (tel) and 4% (meralco) based the adjusted free floated market cap, the magnitude of decline sunk the Phisix (green line) by 4.66%, putting in jeopardy the 5 months of consolidation.

PLDT (yellow orange line) accounted for about 33% of today's trade while MER (black candle) represented a measly 2.8%.

On the other hand, today's net foreign selling registered 241 million pesos where TEL accounted for 90% of the entire foreign exodus.

In addition, what used to be a broad market rout, when faced with such index based collapse, wasn't evident today, despite the whopping 4.65% decline the PSE's market breadth had 24 advancers against 55 decliners.

Plainly stated, this clearly isn't a sign of the previous forcible selling dynamics seen last year, since only one issue accounted for the significant majority of the stampede selling.

It is clearly a sign of an investor strike- against recent management priorities.

So why the investor strike?

Because like San Miguel which overhauled its business model overnight, which turned out to be "partly" politically motivated [see Has San Miguel's Shifting Business Model Been Linked To The Philippine Presidential Elections? Lessons], the precipitate shift by PLDT's leadership to include Meralco in its business model appeared to have been executed out of political exigencies than by strategic business design.

Bluntly put, with PLDT serving as the white knight for the besieged Lopez managed Meralco, politics became the underlying priority of the top telco company at the expense of minority shareholders. Resource allocation by PLDT's management isn't being based on the best probable returns but on political whims for the benefit of the company's top brass.

courtesy of cinemastrikesback.com

As we wrote in Beware Of The Brewing Meralco Bubble!,

``If this floated story is anywhere near correct, then MER, which is a regulation instituted monopoly, whose prized possession is being bitterly contested by politically privileged groups signify an engagement between “crony capitalists” representative of the opposite side of the political fence.

``It’s like a King Kong versus Godzilla movie, where one monster eventually wins but the rest of the city is devastated."

With the Philippine presidential elections around the corner, we seem to witnessing some abrupt changes in the corporate directions of major publicly listed companies. This implies of strong politically motivated actuations instead of profit oriented shareholder friendly actions. Hence such investor strike-especially from foreigners.

Besides, all these reeks of the Keynesian rent seeking crony capitalist model which the Philippine political economic structure has long operated on.

That's why King Kong and Godzilla continues to hold sway over the domestic economic structures (politicians and the elites pick the winners and losers of the society).

And that's also why their "battle for turf" translates to "externality costs"-devastation of the environment, the market or the economic wellbeing of the Philippine society.