Financial Globalization and Not Elections Will Determine the Path of the Phisix

``The whole aim of practical politics is to keep the populace alarmed -- and hence clamorous to be led to safety -- by menacing it with an endless series of hobgoblins, all of them imaginary.”—Henry Luis Mencken (1880-1956), prominent journalist

Almost everyone I talk to still believe that today’s market has been “local” driven in spite of the voluminous material evidence to the contrary.

In fact, I observed that in quite a significant number of comments, the upcoming election poses as a big factor of influence to the present activities in the market.

While I do not dispute that the forthcoming elections may have to some degree some influence, I do not think that it would be substantial enough to cause a ripple.

Recent events point to this:

In 2003, the Phisix climbed amidst a failed July coup which would have unnerved investor sentiment as in the 1987 and 1989 experience [see last week’s No Trend Goes in a Straight Line].

In 2004, the Phisix ignored the menace of political instability brought about by the rancorous contest for the chief of the land.

The Garci Scandal in 2005 managed to delay but was unable to wholly disrupt the ascension of the Phisix.

Simply put, the Phisix survived the most mephitic of the political environment on continued support from foreign capital flows. Foreign money remain as crucial determinants to the progress of the Phisix or to the Philippine asset class which seem to have been desensitized from domestic politics and much driven by “financial globalization” among other variables. Political tumults as in the case of Sri Lanka, Nigeria or Israel have not prevented global investors from bidding up local share prices as evidenced by their national benchmarks.

Unless political developments would have an impact on the capital flow framework as that of Venezuela or Thailand, they are unlikely to MATERIALLY affect the capital flow dynamics on our financial asset markets today. Hence, under such premises, the political election like in the past will most likely be discounted.

Of course, once the temporary setback in the markets should occur, an event which I expect to happen anytime soon, contemporary analysts will jump into the conclusion that these have been politically driven. You can count on that.