Tidbits...
1. On the supposed day of rapture....
...Mushu[1] (in the movie Mulan) says it best: I Live!!!!!!
Any prophesy or predictions based on econometrics (yesterday’s prophetic rapture was mathematics applied to religious exegesis[2]) should always be viewed with deep suspicion.
Econometrics has always been a problem reduction: in a complex world, assumptions, interpretations and application of the models attempt to oversimplify the world’s functionality—whether it was about the attempts to predict Japan’s earthquake[3] or the 2008 crisis[4] or this time as a religious based prophesy, the common denominator has been the same: prediction failures.
2. Overheard at a clinic last Monday from a housewife who was seated in front of me, talking on a mobile phone: “Lepanto will reach 1 peso very soon!!!” [I say, housewife presumably because she was along with two children (who called her “mommy”) and a man (most likely husband).]
When housewives, students or maids babble on stock markets or on specific ‘hot’ issues we are cognizant that mania is at work[5].
ASEAN Bourses: Despite Interim Divergences, Upward Trend Remains Dominant
There have been some signs of interim divergences in the performances of the major ASEAN equity markets.
While the general trend remains in near unison, as seen from the Bloomberg chart on a year to date basis, short term trends appear to reveal signs of nonconformity.
All four major ASEAN bellwethers have drifting at milestone highs, albeit:
Thailand’s SET (red) has reached the 1997[6] level but still is about 33% away from the 1994 all time high of 1,600+. Lately the SET has been in a retracement phase.
Malaysia KLCI (green) has been on a record run[7] as seen from the long term. But the Malaysian benchmark of late, has been in an extended consolidation since the start of the year, has underperformed her peers and has remained slightly in the red going into half semester on a year to date basis.
Indonesia’s JCI (orange) still seems in a high octane drive with fresh record highs[8] repeatedly established as time goes by. The JCI appears to have tied Thailand’s SET in terms of year to date performance, both of whom has assumed the roles as market leaders among ASEAN and Asian contemporaries.
The Philippines Phisix (yellow) has likewise been on a roll as seen from the long term. But since a month ago, the local bellwether appears to be in consolidation while hovering near its resistance level.
Will the Phisix retrench over the near term to form a reverse head and shoulders pattern to generate the momentum required to leap past out of the 4,400 barrier?
Or will Phisix just go ahead and ram at the gates considering that the closing high is merely about 2.5% away?
So far ASEAN markets seem to have sidestepped the minor corrections seen in major equity markets last month[9].
And by way of how our contemporaries has been performing; encroaching on that 4,400 threshold seems imminent—outside any major shocks in the global markets.
Besides if gold continues to make a recovery, despite the constant interventions and seasonal factors, global equities should follow suit.
Gold has served as an important leading indicator of global equity markets.
The recent manipulated decline[10] of commodity prices which has also affected gold has likewise coincided with a downshift in the major world equity benchmarks (DJW), emerging markets (EEM) and even the FSEAX (Fidelity Southeast Asian Fund).
While the correlation may not be 100%, a rally in gold prices will likely filter into equity prices. This should augur well for ASEAN equities which includes the Phisix.
Gambling Versus Prudent Investing
Divergences also typify the week’s performances as reflected on the Philippine Stock Exchange.
Over the week, the Phisix has been slightly down, but the market breadth remains mixed as three out of five of the key sectors were up.
This time, the Financial sector has topped the field while the property sector also registered modest advances.
Meanwhile, the Mining index has also been on a midterm roll; the sizzling hot mines posted EIGHT consecutive weeks of winning streak, which took the second spot this week in terms of best sectoral performance.
We should expect some retrenchment or correction or consolidation as a natural response to ‘normtive’ trends on issues that has mainly buoyed the mining index. That’s unless one foolishly believes that such trends would persist in defiance of the laws of gravity.
Nevertheless, signs are that the long long long price dormant oil exploration firms have been generating some attention. This implies that the mining sector’s overall correction could be muted if a rotation from the current outperformers to peripheral underperformers does occur.
Remember chasing prices on mature trends means greater risk than potential returns. Chasing prices translates to impulsive gambling rather than to prudent investing.
To heed one of Warren Buffett’s basic precepts[11]:
For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.
With a potential break of the 4,400 level in the Phisix, discretion dictates that we should position ourselves on issues that would make this a reality.
[1] Disneyfriends.net, Pictures Mushu
[2] See Apocalypse Today: Divination Based on Econometrics, May 21, 2011
[3] See Science Models Fail To Predict Japan’s Earthquake, March 12, 2011
[4] See How Math Models Can Lead To Disaster, February 25, 2009
[5] See Phisix: Why I Expect A Rotation Out of The Mining Sector, May 15, 2011
[6] Bigcharts.com XX:THAISI Thailand SET index
[7] Financeyahoo.com FTSE Bursa Malaysia KLCI (^KLSE)
[8] Tradingeconomics.com Indonesia Stock Market Index
[9] See Global Equity Markets: Signs of Exhaustion; What US Outperformance Means May 17, 2011
[10] See War On Commodities: China Joins Fray, Global Commodity Politics Intensifies, May 14,2011
[11] beginner-investing-made-easy.com Quotes by Warren Buffett
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