July 2 Philippine Stock Market Review

PLDT’s upsurge is truly an incredible phenomenon. After breaking past its May 26th resistance levels at 1,160, the Philippines largest market cap is now on its way to test its July 13th 1999 or a 5-year high level of 1,275. Moreover, PLDT has long been buttressed by massive capital infusion from foreigners; as of today’s trade it is the largest recipient of foreign money, offsetting the enormous outflows seen in Globe Telecoms. PLDT’s continued winning streak (+1.70%) plus Globe Telecom’s local support (+.59%) have basically cushioned the Phisix’s decline by only 2.96 points or .19%. PLDT’s spectacular rise stoically comes in the face of the huge declines seen in the key US benchmarks where it is also traded.

FOUR of the index heavyweights cumbered on the Philippine 30-company bellwether, Ayala Corp (-1.72%), BPI (-1.17%), Ayala Land (-1.72%) and SM Primeholdings (-1.63%). San Miguel local and foreign shares as well as Metrobank closed unchanged.

Aside from PLDT which recorded the most foreign inflows, minor inflows were seen in First Philippine Holdings and Benpres Corp. Meanwhile, huge outflows by overseas investors were seen in Ginebra San Miguel (-3.57%) and Globe Telecoms as well as minor outflows in BPI and Ayala Land.

Like what I’ve noted on yesterday, trading activities by local investors have ostensibly been growing, even as foreign participation seems to be on a decline. Today’s modest peso volume turnover of P 645 million saw domestic investor’s activities account for 51.6% of the total trades, this comes in the light of a cumulative net foreign selling to the tune of P 38.362 million.

The Market’s general sentiment had a slight bearish backdrop as declining issues edged out advancing issues by a slim 34 to 31 while the number of traded issues came at 110 for its 10th consecutive session above the 100’s. This reinforces our view that the activities of local investors are gradually picking up as more issues are being traded.

On a per industry basis, most of the major indices posted declines, namely the mining, property, banking and finance and the ALL Share index, led by MFC (-.89%) and SLF (-2.5%), shadowing the steep drop of the US markets. On the other hand, the commercial-industrial index led by the telcos as well as the oil index posted gains. Incidentally, the gains from the oils sector could probably be imputed to PSE’s disclosure that the UNOCAL consortium has uncovered traces of gas in their ongoing drilling project at the Sulu Sea.

Finally, regarding our observations of the recent notable declines of foreign activities in the Philippine market, as opined in numerous occasions on my weekly newsletters, this phenomenon could be viewed on a regional scale and is most likely associated with the issue of rising US interest rates and its ramifications, particularly from the unwinding of the so-called ‘Carry Trades’. Noted globetrotting analyst, Chris Wood of the CLSA in his recent report, as quoted by David Fuller of fullermoney.com provides for a wider perspective:

“It has gone on for long enough now that it requires some more explanation. GREED & fear is referring to Asia ex-Japan's relative underperformance vis-à-vis the S&P 500 and the MSCI AC World Index. The MSCI AC Asia ex-Japan Index has fallen by 17.1% since peaking on 13 April, while the S&P500 has risen by 1.3% and the MSCI AC World Index has fallen by 1.2% over the same period (see Figure 1). One explanation for this has clearly been the move out of "risky" assets and the associated unwinding of the dollar carry trade. But the recent underperformance of economically sensitive Asia is also likely an early signal that global growth momentum has peaked. This is also what is suggested by the OECD leading indicators. It is also suggested by recent news in the tech sphere of a peaking out in demand for certain hot consumer electronics products, a trend which is likely to result in rising inventories.”

As one of the most underdeveloped bourse in the world, local buying should enable the Philippine market to progress from its current level even if the foreign players would slowdown due to the abovestated reasons. Of course, there are other considerations such as economic and corporate fundamentals, investor psychology and sentiment, money flows, technicals and hosts of other variables in play, however, in contrast to that of our neighbors specifically the so called ASEAN-5 crisis affected countries, as categorized by the Institute of International Finance, whom have practically recouped or are trading near their 2000 levels, the Philippines has been the region’s laggard, practically due to the local investor’s inertia or aversion to the market which currently trades at a huge discount from the said levels.

AS the Economist noted, the Philippines has the world’s most undervalued currency based on its Big Mac Index as of its May 27th table, this likewise mirrors the state of its domestic equity market being the region’s tailender.