Feb15 2005 Phisix Finally Corrects

Phisix Finally Corrects

The Phisix behaved in exactly the reverse manner from yesterday. While the bombing surprised and spooked the market by opening lower to end up marginally up, today we saw the market open strong, getting stronger (+39 points) until the mid-session only to falter at the last portion of the trading hour. Naturally Moody’s downgrade was the apparent trigger or say ‘rationalized’ or used as an excuse, although the downgrades were not exactly a ‘surprise’ since it has been floated in the market for quite sometime.

We must remember that the financial markets function as discounting mechanisms hence prices in future expectations and not the present. Thus when a market reacts to a say a political event such as an unexpected bombing or a coup it may gyrate violently and may be the causal factor behind its moves. The element of surprise is the key operative phrase for the market to react.

In January 19, S & P downgraded the Philippines credit rating yet the following day market surged by 41.44 points! Quite a dichotomy, isn’t it? The only surprise that could be attributed to today’s Moody’s downgrade was the severity (2 notches).

As I have been saying, the market has been overextended in terms of its winning streak hence the need for a correction or profit-taking.

Let us examine if the Moody’s downgrade has altered the investing landscape. One the Peso still is at the P 54.895 (Bloomberg) down .3473%, as of this writing, although it looks as if it were shadowing the Japans yen which is also down .668% to 105.11 (Japan’s last quarter shows that it has regressed to a recession!) Thai baht is likewise lower by .26%.

Now foreign money still poured on the market (P440.087 million) although they constituted only 37% of the entire trade which means that foreign capital remains bullish while the locals appears to have taken up the profit taking mode. Plus they have been buying the broader market 46 inflows (a record!) against 17 outflows. This signs of bullishness by foreign money is not supportive of the reactions of a recently downgraded sovereign credit rating.

If the intensity of their support to our market remains as steadfast as today, the probability is that our Phisix may have a shallow correction which implies a buying entry at the 38.2% retracement levels.

Finally, it looks as if the Banking and Finance braved today’s decline, this also suggests that maybe the banks will be the beneficiary of rotational buying and despite the correcting property sector there may be issues that may defy the tide.

Well, that’s the way it looks from here

Benson