It’s simply amazing how the Philippine Phisix-ASEAN bourses appear to have sidestepped the generalized negative actions of global markets.
As the chart above exhibits, ASEAN represented by the FTSE ASEAN 40 ETF (ASEA) has been traipsing on the upper side of price levels while major developed economy bellwethers, the US S&P 500 (SPX), Europe’s Stoxx 50 (STOX50) and Emerging Markets’s MSCI Emerging Free Index (MSEMF) have been foundering.
The apparent dissonance could be traced to mostly political events which has shifted from concerns over the debt crisis in Europe’s periphery to the “divisive” US debt ceiling vote.
It would be tempting to say that the ASEAN region has been “decoupling”, even as we are cognizant that globalization has been deepening the interdependencies of all kinds of markets, and not just limited to financial markets.
Today’s deepening financial globalization, enhanced and facilitated by digital technology has been fueling capital mobility worldwide. Thus, foreign ownership of global equities, particularly in Emerging Markets, has significantly been expanding.
Among ASEAN bourses, levels of foreign ownership has been significant, as evidenced by Thailand and Indonesia where foreigners own more than 20% share of equity, based on market capitalization[1].
This makes the region modestly sensitive to exogenous or geopolitical or financial markets shocks.
From the start of the year, the range of the percentage of foreign trade to total trade in the Philippine Stock Exchange has been at 35-45% or about the median at 40% (see above chart).
While this has changed the complexion of the current market conditions compared to 2003-2007 where foreign trades dominated, foreign trades still remains a pivotal force to be reckoned with.
So it is unclear whether ASEAN and the Phisix would function as an alternative haven, which if such trend continues or deepens, could lead to a ‘decoupling’ dynamic, or will eventually converge with the rest. The latter means that either global equity markets could recover soon—from the aftermath of the Greece (or PIIGS) bailout and the imminent ratification of the raising the US debt ceiling—or that if the declines become sustained or magnified, the ASEAN region eventually tumbles along with them. My bet is on the former.
Therefore, I would caution any interpretation of the current skewness of global equity market actions to imply ‘decoupling’. As I have been saying, the decoupling thesis can only be validated during a crisis.
In the meantime, we can read such divergent signals (between ASEAN and the World) as motions in response to diversified impact from geopolitical turbulence.
Under the current conditions, where political developments have been functioning as the key driver of the marketplace (which seems to continually confirm my thesis[2]), a politically induced marketplace, swimming in a pool of liquidity, may have differentiated returns based on risk-adjusted Alpha[3].
Also, current market actions also appear to tell us that political crisis may have less an influence or has a limited contagion effect than from a fully blown economic or financial crisis. This implies that the marketplace could have been habituated or conditioned to the instinctive and systematic policy responses by governments to reflate the system at any emergent signs of distress or simply to flood the world with money.
One may call this a variant of the Greenspan-Bernanke Put[4] or applied in genre, a central banker’s put, by implementing policies aimed at buttressing the financial markets mostly through the reduction of interest rates and or through asset purchases.
Thus, like the boy who cried wolf, every unfolding political dilemma has gradually been discounted or seen as an opportunity to buy or lever up. Typically such landscape which routinely discounts risks factors through a boost in market psychology particularly overconfidence, which should spillover to risk appetites, sows seeds to the Hyman Minsky[5] Ponzi dynamics.
And operating in a Alpha environment, national structural idiosyncrasies, such as political economic system, fiscal outlook, divergent effects from local policies and the dissimilar impact from global monetary policies on the region’s economies both of which contributes distinctly to local cycles, and etc…, could serve as interim forces at work.
In simple sense, Philippine and the ASEAN asset markets could be seen as interim beneficiaries from today’s jumbled geopolitical climate.
Again, this line of thought is predicated on expectations where any political resolution from the du jour predicaments of major developed economies, as the US today, would work in the direction of the intrinsic structure of 20th century designed political institutions of reflating the system.
In other words, global political leaders will largely lean on inflationist policies based on artificially suppressed interest rates and the financing of bailouts by money printing applied to politically favored sectors or to governments.
And these policies which results in perennial boom busts cycles, would eventually be ventilated on global markets, including the Philippines and her ASEAN neighbors too.
So far these actions seem to be in the operating handbook or manual of policymakers from the US to Europe to Japan to China to the Philippines, only the scale varies.
[1] Lanzeni, Maria Laura Emerging Markets: Contagion from trouble in the eurozone has not been widespread. Will it remain like this?, Deutsche Bank July 29, 2011
[2] See Stock Market Investing: Will Reading Political Tea Leaves Be A Better Gauge? , November 30, 2008
[3] Wikipedia.org Alpha (investment)
[4] Wikipedia.org Bernanke Put
[5] Wikipedia.org Understanding Minsky's financial instability hypothesis
No comments:
Post a Comment