Has Politics Influenced on the Movements of Local Markets?

``Men can always be blind to a thing, so long as it is big enough." G. K. Chesterton

Now going back to the markets, even as the Phisix turned sizzling hot for the week up 3.07% or 18.94% year-to-date, we have not been the star performers among the region as Thailand (+4.84%), Bangladesh (+4.36%) and South Korea (+4.52%) easily bested us.

Even Japan’s stock markets surged remarkably, an issue which we had previously discussed, as evidenced by a surge in the Nikkei 225 (+2.73%) alongside its broadweighted Topix (+3.05%).

Thailand’s market breezed through amidst a political setback, where Thailand’s military junta appointed judges of the Supreme Court recently ordered the disbandment of its ousted leader Mr. Thaksin Shinawatra’s political party, the Thai Rak Thai (TRT), Thailand’s main political party. According to the Economist, this was a blow or a “step away” from “democracy”.

Well, Thailand’s stock market appears not to have shared the same pessimism as with the Economist, as its key benchmark rose beyond its December highs, when their government tinkered with the botched “capital controls” to stem their rising currency which resulted to a massive investor stampede out of the Thai’s market.

This should be a lesson to mainstream analysts or to the average investors who always attempt to link events to the markets. While “undemocratic” activities could have resulted to additional woes to the market, instead, running against conventional thinking, the market went into a melt-up phase.

Why? Because we think that in a world of globalization or the intensification of financial markets integration, where a click of the mouse determines capital movements across the borders, markets have shown to increase correlations in an inflationary setting as more money chasing for bigger returns appear to prompt on more “risks” taking appetite wherever and whenever.

And larger risks appetites attempt to ignore developments in the political arena of an emerging market unless it involves the framework of capital flows.

Or perhaps it is in the context that the US dollar poses much more risks compared to the domestic political instability of an emerging market economy, hence the continued flow to non-US dollar assets as portrayed in Figure 2.

Figure 2: Barry Ritholtz: US Dollar Heads Overseas

Another favorite analyst of mine Barry Ritholtz quotes the Wall Street Journal, ``As U.S. investors chase profits overseas, there may be an unintended consequence closer to home: pressure on the American dollar."

Is it a wonder why our own asset classes regardless of the “corruption” and “cheating” charges on its leader continues to absorb heavy torrents of foreign money?

Yes, as the Phisix set new record it was evidently foreign driven; Php 4.67 billion worth of NET inflows, with record spread from foreign money inflows based on companies bought or sold by foreign money.

Eventually a lot of people are gonna pay for a misread or for assuming all such risks, question is who pays, will it be ex-US dollar investors (those who have been bullish with unorthodox “emerging” markets as the Philippines) or US dollar bulls or local politically obsessed public (whom have been indoctrinated to personality based politics)?