Phisix Supported by Local Buying Amidst A Rising Peso

What has this all to do with the Phisix? Well, as previously defined, our benchmark has followed closely the movements of world markets and of the US.

While we may have underperformed this week (slightly down .12%) as a result of a big chunk of foreign money outflows, local buying appeared to have cushioned the profit taking activities by overseas investors, which makes the activities in the Phisix equally remarkable.

Moreover, in the broadmarket, local buying boosted number of advancing issues relative to declining issues, suggesting that local investors have been unusually optimistic last week, perhaps impelled by the strong advances of the Peso.

Again relative to yield considerations, the prospects of higher Peso yield premiums relative to the US dollar alternatives (the popular option among local investors) and the trend of appreciating peso could continue to boost local investors back into the fold of the domestic markets (stocks, bonds, money market instruments & real estate). Remember, local investors make up a minute segment of the population (penetration level-especially relative to the PSE), and is the key reason why our markets have been relatively underdeveloped and a perennial laggard.

This lack of trust has been one reason why our investments have not picked up. Because cost of financing business ventures using the traditional channels have been high aside from the rigorous requirements needed and the aversion of banks to lend considering the past cycle borne out of the Asian Financial crisis, while, on the other hand, savings and capital reallocation have been inefficiently stashed away on mostly US dollar assets (capital flight).

Instead of trusting the markets, we stubbornly insist on trusting politicians who like most of their ilk around the world are of the “know-it-all-type of improvers”, cut from the same cloth, i.e. the desire for more power and privileges, more spending Other Peoples Money in the name of Social Welfare “Common Good”, and more policies directed to special interest groups (translation-either borrow or inflate the peso and/or sell our gold hoard-yes we’ve been net sellers according to the World Gold Council), thereby remain obstinate adherents of the regressive John Hussman’s “Scarcity Mentality” version applied to the field of domestic politics or my so-called Personality-Based Politics (PBP). A shift in the savings of local residents back to local asset classes would be a big boost to the Phisix, capital formation and the domestic economy.

I made my stand last week, enunciating that perhaps this bullish cycle could last until at least the US November elections, given some signs of possible US election related “Unseen” fingerprints in some of the key asset markets, aside from other factors as liquidity expectations, seasonal or window dressing or tax variables.

So considering the present state, it would be best to simply position cautiously as the market attempts to move higher or to either buy on dips or on breakouts. Don’t forget to mind your stops. And avoid from imprudently chasing prices. Let me remind you of the Sage of Omaha’s Warren Buffett’s important warning ``The dumbest reason in the world to buy a stock is because it's going up.”