What Does the Shanghai Composite and the Phisix have in Common?

Both closed down .2% for today. That's the first common denominator.

Of course, that wasn’t the gist.

The Shanghai composite [SSEC] started today's session with a deep 4.4% loss. Going to the lunch break, after a streak of frenzied pump, the SSEC popped into the positive area. 

However, in the pm session, selling pressures reemerged. So the index pumpers made another major push at the near close of the trading day.

Here is how Bloomberg described today’s session [bold mine]

The Shanghai Composite Index slipped 0.2 percent to 3,160.17 at the close, trimming a drop of as much as 4.7 percent. Seven stocks fell for every two that gained as a rally for technology shares fizzled. Industrial & Commercial Bank of China Ltd., the nation’s largest lender, jumped 10 percent for the steepest advance since 2008. Large-company shares rebounded in late trade for at least a sixth day from session lows amid possible purchases by government-backed funds.

More…

China’s markets will be closed Thursday and Friday to commemorate the end of World War II. The effort to support stocks is part of a broader push to ensure nothing detracts from the parade, which is the government will use to demonstrate its rising military and political might.

In other words, Chinese government was principally responsible for today’s market pumping. The Chinese government practically determined the outcome of the indices.

 

To add, the closure of the stock market for several days has hardly been in tradition with the commemoration of Victory Day (hat tip SCMP's George Chen). This only means that since markets can't be trusted to operate on its own, Chinese officials closed the week's remaining trading sessions while they celebrated the occasion with several high profile visitors as Russia's Putin.

 

Now on to the other aspect where the SSEC’s shares a similarity with the Phisix

The Phisix opened the session with a heavy -2.8% losses. 

Like the SSEC, an early morning panic buying operation ensued. 

There have been many instances (e.g. January 2015, October and December 2014) where in the face of a global market meltdown, domestic index managers engaged in panic buying. I call this the “panic buying day”.

Again similar to the SSEC, the early morning panic buying episode whittled down the 2.8% loss to just -.6% by lunch break (80% of losses wiped out!)

I waited for the afternoon delight pump*—another index pumping operation usually conducted at the start of the afternoon session. 

Well, again like SSEC, this pm operation went into action at the near the close of the session. 

However unlike SSEC, the Philippine index managers resorted to an additional action: marking the close. The closing minute pump virtually erased 66% of the pre closing index quote. Thus, the modest .2% loss for the day.

What makes today’s pump interesting has been that peso volume shriveled back to less than Php 8 billion or specifically Php 7.2 billion--excluding the Php 1.32 billion special block sales dominated by LIB.

Even more, decliners trounced advancers 107 to 60. This marks the second day where decliners led by big margins. This also exhibits the patent divergence in the price performance between the general market and the index

So in the realization that there was a pumping operation in place, sellers sold at higher prices (reduced losses) without the need for a stampede. On the other hand, index operators continue to load up on excessively valued securities with the intent to paint the tape.

So if stocks continue to head downhill, the money used for these brazen pumps, which I suspect are third party money (depositor or taxpayer), will suffer immensely. Eventually again they will show up in balance sheets.

*Finally the Philippine index manipulator’s tactical "afternoon delight pump" operation have been mimicked by the Chinese government in supporting their stocks.

The Bloomberg on the Chinese version of the Afternoon delight pump…

Afternoons in the Chinese stock market have turned into a waiting game for the state-backed funds to arrive.

Over each of the past four days, China’s SSE 50 Index of large-capitalization companies has rebounded by an average 6.4 percent in late trading from session lows. The gauge surged 15 percent over the four-day period, its biggest rally since 2008 and twice the 8.1 percent gain by the Shanghai Composite Index. The SSE 50 climbed 0.9 percent at the close on Tuesday, erasing an earlier loss of 4.8 percent.

The rallies are driven by government-backed funds buying shares to stabilize the market before a World War II victory parade on Thursday, according to IG Asia Pte. China’s 90 million individual investors have been pulling back from the market, withmargin debt in Shanghai falling by $10 billion over the past four days to the lowest level since Dec. 25.

“When you see a straight line buying pattern in the last 45 minutes, that’s usually the national team supporting the market,” said Michelle Leung, chief executive officer of Xingtai Capital Management Ltd. in Hong Kong. "When you track market opens or you track outstanding margin balance, we could see the bulk of retail investors selling."

Same techniques used, just awesome!

Manipulating the Philippine PSEi benchmark requires a lot less money considering the highly skewed distribution of market cap weightings by component issues. 

The top 5 issues constitutes 39.14% of the index. This is almost twice the entire 19.89% of the last 15 issues. The 5-10 ranked issues comprises 25.45% of the index. Thus the top 10 issues alone account for 64.59% for the index. Index managers need to push only the top 10 issues to attain whatever targets they desire.

Said differently, the top 10 issues delivers the bulk of the direction of PSEi benchmark. However, media and experts all give the impression that the index has been representative of the overall performance. This again represents one of the many half truths peddled by the establishment.

The above are based on Friday’s quotes.