Seasonality in the Phisix and the Asian Stock Markets

``Intellectual clarity is the key to seeing the right things and doing the right things. It is a matter of knowing the shape of things even before the things take shape”. -Llewellyn H. Rockwell, Jr., Money and Our Future

Since we’ve covered gold’s seasonality factors I might as well make a short comment on the same variables from the standpoint of the emerging market stock markets, see figure 5.

Figure 5: US Global Investors: Emerging Market Monthly Performance

Since the fierce rally last March, many Emerging Market bourses have approached oversold conditions.

Together with the coming seasonal weakness, the risk over chasing momentum grows. As described by US Global Investors, ``Near-term caution may be in order given the outperformance of emerging market equities recently. Seasonality-wise, historical average returns from May to October tend to be weaker than those from November to April. The price performance pattern during the last 2001-2002 recession also indicates risks for a short-term correction.”

Of course considering the divergent performances of global bourses we’re not sure if the same dynamics would cover the Philippine Stock Exchange, although the third quarter has also been the usual weakest link (or our buying window).

Nonetheless the underperforming Philippine Phisix relative to its EM peers may consolidate than suffer from a big correction.

The important thing to ascertain is the whereabouts of the present phase of the market cycle since this would underpin both the medium to long term trend. We suspect that we are in the nascent stages of the bullmarket as discussed in the Phisix: The Case For A Bull Run.

Since the Phisix is now at the 2,100 mark, I expect the current momentum to bring it towards the 2,154 level its 200 day moving average which effectively serves as the “resistance level”, where a successful crossover should mean all systems go for a transition to a full pledged bullmarket.

Of course, no trend goes in a straight line which means the Phisix would encounter intermittent corrections possibly tracing out a similar performance as the MSCI EM in 2001 (chart at the right).

Figure 6: US Global Investors: Asia's Market Cycle Based on Price-to-Book Value

Anyway Figure 6 again from US Global Investors February 20^th alert also depicts of the price to book value cycles measured from trough to trough reflective of Asia bourses ex-Japan.

If history provides any guidance and if today’s rally validates our suspicion of our transitioning towards the next phase of the market cycle then perhaps this bullmarket cycle may last anywhere from 4-6 years.

Although the conditions of the past 35 years aside from the 2001 trough cycle are greatly different than today, the market’s response to the collective money printing efforts by global government may accelerate the boom but shorten the cycle- which probably implies a departure from the past cycles.

I am not sure but will certainly keep a close vigil.