Prudent Investor: The Talisman and the Philippine Stockmarket

The Talisman and the Philippine Stockmarket
March 19, 2005

It is revolting to see how media can easily pollute and manipulate the minds of the gullible public. One late night domestic narrative TV program featured on the efficacy of the talisman, locally known as the ‘anting-anting’. First, it portrayed of the seeming invincibility of amulet. Second, how the talisman is made, and lastly, the show concludes (sic) that the potency of the talisman depends on the underlying faith of its bearer.

While the TV program did feature a tad of skepticism about its effectivity, nonetheless it was totally amiss with scientific evidences proving or disproving its utility. The show’s vignette was primarily based on empirical or observational proofs. It catered to the viewing public’s intuition and not to reason. In other words, the manner of presentation actually frames or impresses on the public to accept these mysterious objects as factual, in condition that it was accompanied by faith.

There are millions of zealots or fanatics of various religious persuasions around the globe who would have gladly used these age old mystical items to promote their interests without the need of blowing up themselves.

The world spends close to a trillion dollars in defense and by discovering and improving on the functional utility of such mystic devices that may substitute for armaments, global poverty may be alleviated as allocations towards defense may instead be channeled towards developmental assistance. That is IF these were genuine.

Unfortunately for the unwitting TV program producers, the show may be indirectly inciting violence, giving goofballs the incentive of proving their unassailability.

In the financial markets, the Talisman analogy can frequently be seen in media which oftenly attaches plausible but uncorrelated events to the market’s movements. This is because the public clamors for instinctive responses to the market’s action.

Take for example this week’s market decline. Mainstream media alongside most experts and observers seems to be groping for a cause citing the Abu Sayyaf retaliation threats and other security issues, failure of to pass VAT and IPO related selloffs as possible reasons for the Phisix’s hefty 4.08% decline. In other words, the market found ‘no domestic walls of worry’ to climb and has left the public bewildered by the recent carnage.

However looking at the global markets, we note that MOST emerging markets were shellacked over the week such as the horrendous declines of the bourses of Romania, Ukraine, Czech Republic, Turkey, Egypt, China, South Korea and etc. In Asia, it was more of the rule, and Indonesia and Australia, being the exceptions.

In my previous newsletter, I have noted of the sharp decline in emerging market bonds which could spillover the Philippine bourse. Apparently and coincidently, these have been the case. Both, JP Morgan Emerging debt funds and Salomon Bros Emerging Debt funds continued to post steep losses this week.

Swooning emerging debts coupled with overbought technical indicators overwhelmed my bullish outlook brought about by the firming peso and the falling US dollar.

The Peso which was down by .39% to 54.34 and should be expected to fall further as the huge block sales of Globe Telecoms led the market to register an outflow of P 1.803 billion over the week. In addition the Peso’s decline was mostly in tandem with the region.

Further, the US dollar could be seen rallying this week highlighted by the US Federal Reserve meeting this March 22. The Fed rate is expected to be raised by a quarter percentage points and any major changes/alterations in the ‘measured’ pace may stir the hornet’s nest in the financial markets.

Next, you have crude oil and other energy prices at record levels for the week and this may exacerbate the liquidations in the global financial markets on SELECT asset classes.

Energy related issues dominated global markets EXCEPT the Philippines.

In Asia, Bloomberg’s Neha Kumar reports, “The MSCI Asia-Pacific Energy index, which tracks energy stocks including Woodside Petroleum Ltd., climbed for the 10th straight week.”

In Europe, Brian McGee of Bloomberg reports, “Oil shares, this year's biggest gainer among the 18 industry groups in the Stoxx 600, paced today's advance…The Stoxx 600's basic-resources and oil and gas groups have added 14 percent and 12 percent respectively in 2005. The broader measure has increased 4.3 percent.”

Bloomberg European Analyst Matthew Lynn says, “The London stock market is going through a speculative frenzy over oil exploration stocks. Investors are piling into stocks based on little more than rumors and hope. Shares are being sold on the back of the purported expertise of developers, not business plans.”

In the Philippines, energy and oil stocks are getting clobbered together with trash issues. In the era of globalization and internet are we still insulated from the world?

Finally, declining bond prices/higher yields and record high oil/energy prices seem to signal an imminent tightening of global liquidity conditions. This is where the rubber meets the road.