PSEi 30 6,950: Desperate Times Calls for Desperate ICT-SM Led SY Group Pump; The Quest for Better Absolute Returns

 

The problem is not people being uneducated. The problem is that people are educated just enough to believe what they have been taught, and not educated enough to question anything from what they have been taught—@ProfFeynman

 

PSEi 30 6,950: Desperate Times Calls for Desperate ICT-SM Led SY Group Pump; The Quest for Better Absolute Returns

 

An organized four-company pump pulled the Philippine PSEi 30 back to 6,950

 

The Philippine PSEi 30 closed the week up .33% to nearly recover the 6,950 levels, which slipped from profit-taking during the early innings of the week.

 

Through seven weeks of consecutive advances, the headline index's YTD returns swelled to 7.63% (as of March 8th) and 16.44% from troughs of October 2023.

 

Understanding the foundations of the recent rally is imperative for comprehending the stock market cycle.

 

1. Only a few issues have been responsible for most of the gains of the PSEi 30. 

Figure 1

For instance, ICT share prices have gone totally vertical!  Its % share of its free float market cap has also gone parabolic! 

 

Up by an astounding 9.4% this week, ICT etched a new all-time high last Friday as it toppled BPI for the fourth spot as the largest PSEi 30 company!   Its market cap share has gained 16%, while YTD returns delivered 25.5%!  

 

However, ICT's share prices have diverged from its 2023 financial performance. 

 

Although ICT may have contributed by about 15-18% of the PSEi 30's YTD gains, it couldn't do it alone.  

 

And so, a series of orchestrated and rotational price pumps have also incited an upside spiral of share prices of other market cap heavyweights—primarily financials.

 

But since financials were on a weekly recess, recovering the PSEi 30 to its early March levels required help from other PSEi 30 mainstays. 

 

And thus, the SM-led Sy group (the top 3 heavyweights) assisted.

Figure 2

It is no surprise that pre-closing (3) pumps and (2) dumps governed the outcome of the headline index. (charts from Technistock)

2. Market internals Diverge with the Headline Index

But the general market didn't seem to agree with the index managers.

Figure 3

Decliners dominated the PSEi 30 breadth (19 down and two unchanged).  (Figure 3, upper chart)

 

The average change was a 1.19% deficit.  It showed signs of exhaustion, but index managers wouldn't allow it.

 

The week's performance was a deviance from the overall market sentiment.

 

Decliners also prevailed over the broader market with a 507-414 in the former's favor.  

 

Though reportedly bolstered by an aggregate foreign buying of Php 1.73 billion, mainboard volume growth remained anemic, if not lethargic. 

 

Nonetheless, the easing of global financial conditions has intensified the leveraged speculative mania.

 

The Indonesian JKSE reached an all-time high (ATH) this week to join the ranks of the five national benchmarks in Asia-Pacific, which set a new milestone in 2024. (Figure 3, lower image)

Figure 4

3. Concentrated and Organized Pumps 

Circling back to the local market, mainboard volume remained outrageously remote from its predecessors (2021, 2022 and 2023). (Figure 4, topmost visuals)

 

Yet, an elite crop of (top 10) brokers (mainly institutional) dominated or continued to control a substantial share of mainboard volume. (Figure 4, middle window)

The trading volume of the Sy Group accounted for 24% of the main board volume.

The top 20 most active issues corralled 83% of the main board volume.

 

Evidence from UC bank loans exhibits that the lending growth to the financial industries appears to have resonated with the PSEi 30's performance. (Figure 4, lowest chart)

 

Does this indicate intra-industry margin trade?

4. The Impact of Market Distortions

 

This compilation of evidence suggests a "cartelized" market rather than an economically functional one. 

 

The degree of distortions could be symptomatic of massive skeletons in the closet in the balance sheets of mainstream companies. 

 

Think about the 4-year Php 48 billion "budget overrun" by one of the largest telco firms here.  

If the supervising authorities can't balance the order for the minority shareholders, the industry and the economy, why should we suppose that markets are pricing capital effectively?

 

If so, what are the repercussions of sustained and intensified distortions of capital market pricing and misallocations?  A bull market?  Or a bubble bust?

5. Quest for Better Absolute Returns 

Our goal as an independent analyst is to understand the genuine conditions of the marketplace so we can make prudent choices from the underlying risk conditions to generate better absolute returns.

 

We could have a broader scope of market forensics.  

Unfortunately, our access is limited to ungated (free) resources.  We could broaden our perspective to see monthly foreign participants and brokers per issue.  If available, the cumulative number of cross-trades and more. 

 

We could also see the depth of participation and general market sentiment via the aggregate number of issues (and components) above or below their 50-day, 100-day, or 200-day moving averages, the periodic price highs and lows, and more.

We certainly could use more data to expand our analytical horizons, which we can use in our assessment in the context of probabilities, behavioral finance, financial theories, and more.  

But then again, we are limited in resources and workforce (single analyst, data encoder, and agent/trader).

 

However, unlike the mainstream, this free subscription site aims for objective, value-free analysis, unconstrained by the agency problem (conflict of interest).  

We don't write to push for implicit sales goals or promote the interest of political or politically connected institutions—which is why there have been NO takers of the PSE's short selling (yet). 

Neither do we rely on confirmation bias themes to get "likes." 

Writing helps this free market acolyte learn more and work to improve on portfolio management, which I have been sharing with you for years.   

 

Anyway, thank you very much for listening.

 

PSEi 30 6,700: The Return of the Bull Market or Bull Trap?

 

We can chart our future clearly and wisely only when we know the path which has led to the present—Adlai E. Stevenson

 

PSEi 30 6,700: The Return of the Bull Market or Bull Trap? 

Would a breach of the Philippine PSEi 6,700 level lead to a sustainable bull market? Or does this represent a bear trap?

Figure 1

 

The mainstream has used this symmetrical triangle chart to predict the "return" of the bull market.   The kernel is:  that an upside breakout from it should spur a sustained uptrend. (Figure 1, upper chart)

 

Yet, they omit to spell out the probability of its success.  Certainly, some breakouts could become self-fulfilling, but others don't.  And like thumbprints, a price chart is distinct from another.

 

Next, seeking patterns in charts to support a prejudice could be about attentional bias—"the tendency to prioritize the processing of certain types of stimuli over others."

 

Lines can be drawn to fit into one's predisposition.  The PSEi 30 chart has broken out depending on the base used.

 

Also, since charts are supposed to incorporate all available information, does this include the issue of managed pumps?

 

And there is the agency problem, selling investment themes to boost institutional income rather than helping savers generate optimal returns.

 

Sure, index managers may find support from the local version of the Sovereign Wealth Fund, Maharlika Investment Fund, but funds for market placements are also limited.

 

Has the recent ramp to 6,700 been spontaneously driven by market forces, or have these represented "engineered pumps" by politically motivated entities?

 

Last week, pre-closing "dumps" on 4 of the five sessions shaped the path to 6,700. "Pumps and dumps" occurred in three of the four sessions. (Figure 1, lower diagram)

Figure 2

 

Ironically, despite marginal foreign buying, the average daily mainboard volume increased 13.8% from Php 4.14 billion to Php 4.7 billion.  (Figure 2, topmost window)

 

Foreign inflows accounted for Php 646 million, with foreign trade making up 49.7% of the weekly aggregate gross volume.  The inclusion of foreign money should have boosted volume considerably.  Instead, turnover remained subdued, implying the local institutions unloaded. (Figure 2, middle chart)

 

Figure 3

 

Though breadth was negative for both the PSEi 30 (13 decliners, one unchanged) and the PSE (466 decliners, 398 advancers), the PSEi 30 closed +.32% higher, pushing year-to-date returns to 4%. (Figure 2, lowest window and Figure 3, upper chart)

 

Retails have barely been present in the thrust to 6,700.

 

The biggest weekly push to the PSEi 30 emanated from the financials and services, particularly ICTSI. (Figure 3 lower graph)

Figure 4

The market cap of the top 5 issues (SM, SMPH, BDO, BPI, and ICT) climbed to an all-time high, backed by the three bank financials (BDO, BPI, and MBT) and ICT.  (Figure 4, top and bottom charts)

 

And pumps on the financial bigwigs of BDO and BPI have barely spilled over to the rest of the banking industry.  Security Bank and Union Bank have recently been sold off.

Figure 5

 

Moreover, trading volume has supported selective price gains. The volume of the Sy group of companies or BDO relative to the mainboard has been climbing (Figure 5, top and bottom graphs)

 

This week, the top 10 brokers accounted for 58.7% of the mainboard volume.

 

This concentrated activity points to institutional entities pushing up the big caps.

Figure 6

 

Of course, non-bank financials have been instrumental in supporting the PSEi 30.  From the BSP, "Moreover, the other financial corporations’ claims on the other sectors, particularly the private sector, grew as the sector extended more loans to households and increased its holdings of equity shares in other nonfinancial corporations." (bold added)

 

In Q3, the slowdown in the sector's buying led to the PSEi 30's cascade. Non-bank financials have also shifted from buying "banks" (Q4 2022 to Q2 2023) to "other non-financials." (Figure 6, top chart)

 

Finally, though the path to PSEi 30 6,700 may be selective, it depicts the loosening of monetary conditions.  The PSEi 30 has risen on the back of higher inflation (2015-2018) and (2020-2022). (Figure 6, bottom graph)

 

That said, recent advances in the PSEi 30 could foreshadow the return of inflation.

 

With systemic debt piling up, do current conditions support the return of the bull market or bull trap?

 

We offer a different view:  we are likely witnessing "blowoff" phases in several global markets in the face of mounting speculative leverage, anticipating low rates to sustain it. 

 

Markets have ignored several critical risk areas like China, global commercial real estate, escalating geopolitical tensions, and more.

 

Once this FOMO hits the wall, expect a test on the recent lows.

In the meantime or in the short-term, anything can happen.