PSEi 30 6,700: Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue

 

The ultimate result of shielding men from the effects of folly is to fill the world with fools—Herbert Spencer

In this issue

 

PSEi 30 6,700:  Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue

I. PSEi 30 Bested ASEAN Peers; China’s Government Launches Massive Stock Market Rescue

II. PSEi 30’s Organized and Concentrated Pumps: Muted Volume and Selective Winners

III. Renewed Pumps on PSEi 30 Banks

IV. Concentrated Activities: Centralization of Broker Activities, Lack of Retail Participation

V. Foreign Inflows, Rising Yields of T-Bills, and a Flattening Treasury Curve

 

PSEi 30 6,700:  Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue

 

A slice-and-dice perspective of the Philippine PSEi 30's weekly 2.8% gains before the 2023 GDP announcement.

I. PSEi 30 Bested ASEAN Peers; China’s Government Launches Massive Stock Market Rescue

 

Figure 1

 

In the face of drastically loosening financial conditions, the Philippine PSEi 30 surged by 2.8% to reverse the 2.1% loss from the other week that stole the thunder of its ASEAN peers. 

 

Notably, benchmark stocks of the Asian region were mixed—10 of 19 up with an average of .43%, mainly from the biggest winners. (Figure 1, upper graph).  East Asian and Australasian bellwethers closed higher, while profit-taking pulled most ASEAN and South Asia indices lower.

 

Weekly advances in the national equity indices of Hong Kong (HSI +4.2%) and China (SSEC 2.8%) also led the advancers and buoyed the region's average returns. (Figure 1, lower charts)

 

A seemingly desperate Chinese government announced several substantial measures to stem the $6 trillion stock market rout, including a widening ban on short selling, bigger-than-expected RRR cuts, talks about a $278 billion stock market rescue package, targeted lending, easing of regulatory restrictions on home purchasing, and more coming.

 

However, from a five-year perspective, this week's rally in China and Hong Kong’s stocks emerged from substantial oversold conditions.

 

From our humble perspective, bailouts only kick the proverbial can down the road with nastier consequences.  This band-aid approach barely deals with the issue of malinvestments and instead contributes to the erosion of savings.

II. PSEi 30’s Organized and Concentrated Pumps: Muted Volume and Selective Winners

 

Back home, although the PSEi 30 appears to be testing its resistance level, it's hardly a generalized speculative frenzy.  This week's gains pushed YTD and November 2023 returns to 3.7% and 12.15% (as of January 26th).

 

The outperformance of the principal PSEi 30 seems to be a product of organized, coordinated, and concentrated pumping.

 

Aside from easing conditions, the PSEi 30's sugar high could signify a frontrunning of the pre-announcement of the 4Q and 2023 GDP on January 31st.

Figure 2

 

The PSEi 30 has been rising in the backdrop of declining volume. 

 

This week, the average daily main board volume dropped 17.4% from Php 5.01 billion to Php 4.14 billion.  (Figure 2, topmost chart)

 

Though the average daily gross volume jumped by 11.6% from Php 5.99 billion to Php 6.68 billion, special block sales comprised 38%.  Cross trades have also bolstered the main board volume.

 

The primary winners were the largest market capitalization heavyweights.

 

And though 18 of 30 issues closed higher with one unchanged, five of the top 6 market cap issues delivered an average weekly return of 4.32%.  (Figure 2, middle window)

 

In turn, the top 5 issues (SM, SMPH, BDO, BPI, and ICT) now command a 48.15% share of the PSEi 30.  The top 10 has a 71% share.  Briefly, these elite issues led the path to 6,700.  (Figure 2, lowest graph)

Figure 3

 

As a result, the selective pumps have exacerbated the skewed distribution of market cap weighting. The weight distribution resembles and depicts the Power Law. (Figure 3 topmost graph)

 

SM's 6.32% spiked its market cap share to 14.61%, as well as the Sy Group's 33.35%.  (Figure 3, middle pane)

 

The Sy Group's share of the main board's volume also increased to 24% from 19.8% a week ago.  The Sy Group has been amassing buying interests from institutional entities since December 2023. (Figure 3, lowest pane)

 

III. Renewed Pumps on PSEi 30 Banks

 

The surging share of PSEi 30 banks via outsized weekly returns has also been a factor. 

Figure 4

 

Banks' share of the PSEi has risen to 20.61% (as of January 26th), fast closing in on its record 20.75% last September 2023.  (Figure 4, topmost graph)

 

Up by 5.2%, the financial index outperformed the other sectors. (Figure 4, middle window)

 

Thanks to the BSP's Php 2.2 trillion injections, subsidy on deposit liabilities via historic low rates, and the various relief measures, the trio’s bank (BDO, BPI, and MBT) share of the PSEi 30 surged by 62% from August 2020 through last week. 

 

Notably, the bidding spree was limited to banks of the PSEi 30.  Similar to 4Q 2022 until 2Q 2023, were the buyers the non-bank financials?  The BSP has yet to report on the 3Q conditions of the Other Financial Corporation survey.   

 

Essentially, the October-November trough coincided with the sharp drop in bank loans to the financial sector.   Have banks reopened their lending spigot to their non-bank peers? (Figure 4, lowest chart)

 

IV. Concentrated Activities: Centralization of Broker Activities, Lack of Retail Participation

 

Broker activities also manifest the concentration of trading activities.

 

Figure 5

 

While the average daily share of the top 10 brokers fell from 65.2% to 57.9%, the elite (mainly institutional) brokers remain significant.  (Figure 5, topmost window)

 

These elite firms are responsible for a chunk of cross-trades.

 

The remaining 113 or so brokers compete for the morsels.

 

It is not a surprise that end-session pumps or dumps have become a regular feature.

 

Despite the 12% surge of the PSEi 30 from 4Q 2023, the lack of participation of retail money remains apparent.

 

The average daily traded issues bounced while remaining on a downtrend.  Or the increase in trading coverage comes with low volume. (Figure 5, middle graph)

 

On the other hand, decliners have led advancers for the last three weeks while the average daily trades continue to flounder.  Incredible. (Figure 5, lowest chart; Figure 6, topmost chart)

Figure 6

 

Though there were minor improvements on the retail side, January's trades remained a game for the big boys—who have been trading among themselves.

 

V. Foreign Inflows, Rising Yields of T-Bills, and a Flattening Treasury Curve

 

The index managers got some help from foreigners.

Foreign money reported inflows of Php 793 million and Php 4.31 billion in 2024.  (Figure 6, middle graph)

 

Global financial easing may have prompted some overseas funds—via carry trades—to chase returns here.

 

Ironically, despite the inflows, volume remains lackluster.

 

As a caveat, in a world of globalization, trades by offshore entities or direct and indirect affiliates of listed firms may be counted as foreign money.

 

The PSEi 30s' recent ramp tells a story of stage-managed trading activities (organized, coordinated, selective, and concentrated), which is hardly a sign of a bull market.

 

Rising T-bill yields, amidst a flattening curve, also hardly translate to a sustained Risk-ON scenario.  Instead, it lays the groundwork for negative surprises. (Figure 6, lowest chart)

 

 

 

 

 

Are Foreigners to Blame for Liquidating "Cheap" PSEi 30?

 

The past is a source of knowledge, and the future is a source of hope. Love of the past implies faith in the future—Stephen Ambrose 

Are Foreigners to Blame for Liquidating "Cheap" PSEi 30? 

The PSEi 30's recent breakdown has made the mainstream anxious. They point to foreign money as culprits for the sell-off. Eight factors to consider. 

Bloomberg/Edge Malaysia, September 12: A selloff that’s made Philippine stocks the worst across Asia’s emerging markets may have further room to go, as concerns about a hawkish central bank keep foreign investors on the sidelines.  The Philippine Stock Exchange Index has slid 3.6% so far this quarter, wiping out more than US$11 billion in market value. A hawkish pivot by the central bank — as inflation creeps back up — is blunting the appeal of local equities for global money managers from BNP Paribas Asset Management to Franklin Templeton. Like many economies in Southeast Asia, the Philippines is dealing with renewed concerns about supply-side inflation. Worries about much weaker-than-expected growth along with a stronger US dollar are exacerbating fears that the nation may see more pain ahead. 

 

Sales promotion or opinion or facts-based report?  Why do contemporary media stray into the area of tacit advocacies?  Have they been promoting the interests of unstated groups?  Do they even make "conflict of interest" disclosures? 

 

Facts?  Yes, selectively.  Pushing one statistic to justify a conclusion represents "begging the question." 

 

The mechanical reaction for the mainstream is the "attribution bias" (blame external forces) on events that go against their interests. 

Figure 1 

 

Have Philippine stocks been cheap? (Figure 1, topmost chart)   

 

It depends on where you look. 

 

True.  Because Earnings Per Share (EPS) has been increasing, recent price pressures have decreased the Price Earnings Ratio (PER), thus "cheap." (Figure 1, middle window) 

 

But that's mostly smoke and mirrors.   

 

Eight things to consider: 

 

1) Overstatement of Financial Conditions. Rising EPS can be a result of overstatement.  Have PSE firms been transparent?   

 

For instance, PLDT's Php 48 billion unauthorized "overspending" spread over four years means that the largest telco firm understated costs and likely overstated the bottom line.  Four years!    

 

What have authorities done to enforce restitution in favor of the investing public?  Have authorities made moves to remedy such lapses in governance (of affected firms and the supervisory agencies)?  How many of the listed firms have been inflating their financial statements?    

 

2) Integrity.  If officials have patently glossed over the perpetual end-session pumps and dumps, why shouldn't this compromise the integrity of prices and fundamentals of listed firms? 

 

3) Selective perception.  EPS ignores all other data and supporting theories.  It fundamentally discounts how the historic debt of the PSEi 30 has been outgrowing EPS.  PSEi 30 Non-financial debt grew by Php 389.5 billion, 4.6x the Php 84.7 billion net income in the 1H 2023. (Figure 1, lowest graph) 

 

4) Stock market cycle.  The EPS omits the stock market cycle.   

Figure 2 

 

The PSEi 30 is in a bear market cycle, whether seen from the USD or its nominal value.  The milestones may be different, but the stage/phase of the secular cycle is quite clear.  (Figure 2) 

 

The PSEi 30 in USD peaked in 2013 and traded sideways until 2018 before succumbing to a bear market.  In the same period, the USD Php rose, offsetting the advances of the nominal PSEi 30. 

 

The nominal PSEi 30 climaxed in January 2018 and tumbled into a grinding bear market. 

 

5) Foreign Money.  Have foreigners been a material issue in the fate of the PSE?  Or have foreigners been "fleeing" the PSE?  

Figure 3 

 

Even as the PSEi 30 has slumped, foreign outflows have been moderating based on the BSP's Foreign Portfolio data, but this includes fixed-income positions. (Figure 3, upper pane) 

 

Foreign savings should fill the gap of the eroding domestic capital.  Foreign interest in local stocks hit its pinnacle in 2013, coincident with the peak in the USD PSEi 30.  But since then, foreign flows have been in a downtrend.  

 

The trend of annual PSEi 30 returns has chimed with foreign selling, which has dominated the PSE since 2018. (Figure 3, lowest chart) 

 

During the largest outflow in 2020, the annualized PSEi 30 produced an 8.64% slump, more modest than the 12.8% dive in 2018, when foreign money outflows were more subdued.  

 

The point is, yes, foreign selling has partly affected PSE returns, but this is primarily a local problem.  If there had been sufficient local savings, it would have negated these foreign liquidations.  

Figure 4 

 

6. Yield Arbitrage.  Accompanying the PSEi 30 bear market have been wider spreads of US rates (10-year) relative to the Philippines treasury (gross PDS data).  But this hasn't diffused into a surge in outflows. (Figure 4, topmost chart) 

 

Instead, it diminished the entry of portfolio capital.  Or it reduced the motivation of foreign money to load up on local stocks.   

 

But this overlooks the changes in the local political-economic component.  For instance, the pandemic economic closure incited the exodus of foreign portfolios (PSE data). 

 

7. The essence: savings.  A lack of volume has plagued the PSEi 30 (exhibited annually or monthly).  

 

To repeat.  The inadequacy of PSE volume is a manifestation of diminishing savings.  (Figure 4, middle and lowest charts)  

Figure 5 

Diminishing PSE volume (% YoY) has coincided with the declining rate of bank cash reserves.  The downtrend in cash-to-deposit has synchronized with PSEi returns. (Figure 5, top and middle charts) 

 

Summarily, NO accumulation of savings, NO increase in PSE trading volume.  Therefore, NO volume, NO bull market. 

 

Statist/interventionist/anti-market policies and inflation (tax) or bubble-blowing policies consume savings.  

 

Good luck to those who believe otherwise. 

8. Last but not least, Capitulation. Like in 2002-03, the PSEi 30 will turn bullish when everyone else (including media and their host of experts) becomes bearish. Heed the lesson of Sir John Templeton. (Figure 5 quote)

  

Yes, "cheap" will become "cheaper."