May2605 Phisix reflects Asian Equity Weakness

During the past sessions you’ve probably heard our so called market experts attribute the current sluggishness to either being caused by political uncertainties or to weak economic figures.

In particular, prior to the VAT’s enactment, most of the doldrums were heaped on it. However, despite last week’s VAT’s passage, market activities have failed to pick up. And with no headlines to impute on the market, the most likely culprit would be the sacking of the Estrada appointee NLRC chief who defiantly called for the ouster his new employer. Well, based on news accounts it appears that the malcontent had no specific charge but, as the usual, motherhood craps. While even today’s country credit rating upgrade by Fitch failed to inspire a rally!

Now since I am not in a habit of making headline analysis I opt to look at what has been developing in the market since the start of the week.

First it is noteworthy to mention that volume has shriveled remarkably. Peso volume turnover has averaged only a meager P 594.5 million! And yet about 38% of that is due to special block sales and cross transactions which leaves average board transactions to about only a dumbfounding P 368.59 million for the past 4 days!

Now if we take into account the participation of foreign money, then the recent dreariness could be deduced to foreign selling as overseas capital registered about P 95 million of outflows or about .4% of the cumulative turnover while dominating the trading activities with a 65% share! So with the VAT law in place and a credit rating upgrade, could it be that slower imports (lagging indicator) or politics be the culprit? My lowly hunch, NO!

Since foreign capital dictates upon the directional flows of the domestic market, then taking a broader view of the regional bourses should give us an idea of the current activities of 'hot money'.

The chart below shows that the Phisix (candlestick) appears to be tracing the moves of the Dow Jones Global 1800 Asia Pacific Index (red line)…

Phisix vis-a-vis Dow Jones Asia Pacific

In the face of tightening liquidity environment as evidenced by a flattening yield curve in the US, it appears that capital flows have currently been directed towards fixed income securities at the expense of Asian equities as the emerging market bonds have outperformed. We could likely expect the return of capital flows to equity markets as the interest rate hikes in the US will officially be suspended.