Two
dismal months for financial markets may give way in March to a relief
rally for assets such as global equities, as some key central banks
(the People’s Bank of China, the European Central Bank, and the
Bank of Japan) ease more, while others (the Fed and the Bank of
England) will remain on hold for longer. But repeated eruptions from
some of the seven sources of global tail risk will make the rest of
this year – unlike the previous seven – a bad one for risky
assets and anemic for global growth.—Nouriel Roubini
In
this issue
Phisix
7,100: More Statistical Mirages and An Eight Issue Powered Vertical
Rally
-Similarities
and Differences of 2015 and 2016
-January’s
Industrial Production: Real Boom or Statistical Pump?
-Government’s
Building Permit Data Shows of A Surprise: Stagnation in Construction
Activities in 2015!!
-BSP’s
Politically Correct FDI Report and the Foreign Exchange Inventory
Spike in February GIR Data
-Unintended
Consequence: ECB’s Bazooka Powered the Euro and Asian Currencies
Higher!
-Phisix
7,100: EIGHT Issues Have Led the Vertical Rally
-Bidding
Frenzy Amidst Decaying Fundamentals: Ayala Corp’s Topline Revenue
Fumbles! AEV Posted Decline in 2015 Income Growth Rate!
Phisix
7,100: More Statistical Mirages and An Eight Issue Powered Vertical
Rally
Similarities
and Differences of 2015 and 2016
At
the advent of 2015, the consensus predicted that the year was bound
for not only for munificence but for economic nirvana. The
statistical economy would continue to post growth rates in line with
their elevated expectations such that corporate earnings growth for
listed companies would soar to the mid teen levels. These had been
used to justify a serial pump on prices of Philippine stocks.
In
a little over three months, the headline index soared by 12.4% from
the year’s start to hit an acme at 8,127.48 in April 10, 2015. Yet
the race to landmark highs had been unaccompanied by the general
market.
Within
this period, clowns masquerading as economic ‘experts’ had been
unabashedly shouting at the top of their lungs that the Philippines
had attained newfound prosperity through a “this time is different”
economy. Some went on to aggressively revise their forecasts growth
projections for returns on Philippine assets upward. Also some
believed that political efforts were responsible for such a feat. And
because of the certitude of continuity, some ‘experts’ even
implicitly heckled at those who thought otherwise.
Yet
after the April breakthrough event, things began to turn murky. The
Phisix started to lose ground with no apparent reason. The peso also
exhibited signs of strains. The flattening yield curve seemed headed
for inversion.
All
these occurred even while economic and financial headlines remained
mostly sanguine despite some instances of blemish. GDP numbers
climbed. Media focused on corporate headlines which exhibited
G-R-O-W-T-H. However, the Phisix continued to flounder.
Then
the
August crash came. Media and experts rushed to pin the blame on
exogenous forces, in particular, China.
Automatically,
bulls came out strongly to push the PSEi from 6,600 back to 7,000.
The PSE even celebrated
the return of the 7,000 to highlight the economy’s
“resilience”. Yet the irony has been that despite the claims of
“resiliency” , the PSE had to censor 2Q
performance of listed firms, and eventually even the third
quarter performance because souring numbers percolated!
Meanwhile,
bizarrely mainstream media mounted a
two week PR blitz to promote the real estate sector during the
last quarter of 2015. As it turned out, the
reason for such media campaign had been to shore up the sector which
was palpably suffering from incipient weakness.
The headline
have been seen critical to the ‘animal spirits’.
So
the government has not only resorted to the inflation
of the GDP by toying around with base numbers, the Bangko Sentral
ng Pilipinas (BSP) had to even stunningly recast the two years of OFW
remittance data set in order to skirt the issuance of reports which
had BIG NEGATIVE numbers on it, specifically
October and November’s monthly data.
At
the close of 2015, contra the consensus, the Phisix closed with a
3.85% deficit.
Importantly,
the year
ended with establishment and the government vehemently denying all
forms of deficiency by the embellishment and or expurgation of
data which did not conform with the G-R-O-W-T-H agenda, the rampant
of manipulation markets* and by the arrant misrepresentation of
actual financial and economic conditions.
*This
week’s buying binge included three
fantastic sessions last minute Viagra Pump.
But
the miseries of the Phisix didn’t stop there. Again despite the
much touted economic “robustness”, the year
2016 was baptized with a crash! But this time the meltdown led
the headline index straight
into the bear markets.
Moreover,
despite desperate attempts to camouflage fundamental shortcomings,
infirmities have surfaced. For instance, PLDT
reported a collapse in 4Q earnings which helped dragged down its 2015
performance by a third. In spite of the rhetorical legerdemain,
the PSE’s largest firm SM Investments posted a ZERO net income
growth for 2015 as topline growth fell hard!
But
even with such revelation, the Phisix has rallied with vehemence to
the upside. So what have been the similarities and differences
between today and 2015? Or what justifies today’s panic bidding?
The
similarities: The upswing in early 2015 and today have all been
mainly anchored on rabid denial of any fundamental shortcomings.
Importantly such has underpinned the casino’s impulse: HOPIUM.
The
differences: The rally to record highs in 2015 came with sparse signs
of fundamental deficiencies. Today’s rally has been transpired
amidst signs of increased strains in fundamentals.
Another
difference, the use of misinformation to support such denials appears
to have become more pronounced in 2016.
January’s
Industrial Production: Real Boom or Statistical Pump?
The
Philippine government announced that January industrial production
growth rates zoomed by a fantastic 26.5% year on year.
I
question this data on three grounds: the market for production
output, manufacturing input prices, and banking system’s
manufacturing loan growth.
Here
was the government report1:
(bold added) 1) Value of Production Index rebounds in January 2016:
Value of Production Index (VaPI) for total manufacturing
significantly rose to 26.5 percent in January 2016 compared with the
negative 1.1 percent in January 2015, according to the preliminary
results of the Monthly Integrated Survey of Selected Industries
(MISSI). This was brought about by the
three-digit growth experienced by chemical products (309.6%),
particularly for drugs and medicine sub-sector. Other major sectors
that pulled
up the performance of VaPI were tobacco products (49.6%), food
manufacturing (19.1%) and beverages (11.7%).
2) Volume of Production also exhibits two-digit growth Volume of
Production Index (VoPI) likewise posted 34.3 percent increment in
January 2016 compared with 2.6 percent during the same period last
year. Chemical products contributed significantly to the growth with
312.4 percent, followed by major sectors that registered two-digit
growth in VoPI, namely: tobacco
products (49.4%), machinery except electrical (23.6%), food
manufacturing (20.2%), electrical machinery (19.2%) and beverages
(10.1%).
Intriguingly,
despite the 26.5% G-R-O-W-T-H, only 6 out of the 20 sectors or 30% of
the manufacturing subsectors posted positive while the rest suffered
contraction.
The
implication has been that only ‘some’ of the 6 sectors, accounted
for the largest segment of the industrial production survey, to have
overwhelmed the general conditions. To be specific, that some may in
fact be a single industry, chemicals (drugs and medicine).
So
just where have all such jump in production been directed at?
January’s
export numbers reveals of a NEGATIVE 3.9% year-on-year growth.
This implies that the export sector remains in a growth
recession.
Nevertheless,
the surge in January’s chemical production hardly seems to have
found an export market. That’s because based on January’s
numbers, chemical exports contracted by a staggering 34.6% (see
bottom)! So perhaps part of January output will show up in February
numbers. That’s an ‘if’.
So
if the January’s production blitzkrieg has hardly been for exports
then it must have been for local consumption.
But
then why the sudden upsurge in chemical production (mainly for drugs
and medicine)? Has there been an epidemic to have incited an
explosion in the demand for domestically produced drugs? This can
hardly be about the Zika virus. There
is no treatment or vaccine available for the Zika virus. Besides,
testing kits for the Zika
virus has not been made commercial, so these are limited to research
centers in the US.
Yet
growth rates of chemical production during the last quarter were at
October
-2.1%, November
9.4% and December
10.5%. Meanwhile, the government’s health CPI stood at wow (!)
an astounding constant 2.99% in January
2016, in December,
November
and October!
In short, those
constant CPI monthly numbers do not support a supposed explosion in
demand for health products or services.
Heck,
constant CPI Health numbers??? This
exhibits evidence that the government’s numbers have not just been
derived from fictitious surveys but numbers churned out from
econometric models unrelated to the real world!
So
it unlikely that the swelling of chemical production for January have
been about a permanent substantial upswing in (consumer) demand.
The
other possible factor could be about tobacco production. But changes
in tobacco production had been “normally” volatile. For the last
semester of 2015 the government’s monthly numbers were: August
+25.2%, September
+36.3%, October
131.3% November
+54.1% and December
-3.3%.
The
gyration of production numbers somewhat resonates with the
government’s measure of tobacco CPI. Tobacco CPI seems to have
consistently sustained high rates of increases (year on year) as
noted over the same period: August
4.4%, September
4.1%, October
4.3% November
4.9% and December
5.7%.
Curiously,
such high rates of tobacco CPI occurred even when general CPI hit a
low of .4% in September
and .6% in August.
This
implies that while tobacco production and CPI may have reflected on
economic forces (surge in demand relative to supply, that spilled
over to production), the other possible explanation for the sharp
fluctuations could be from distortions
impelled for by excise taxes. Excise taxes for tobacco products are
increased 4% annually since 2013.
And
yes, do note that the sharp growth oscillations in tobacco production
such as in October
and November
which hardly boosted industrial production growth rates at
NEGATIVE 9.2% and +1%, respectively.
So
tobacco production was barely a factor to January’s surge. The
other growth rates have been insubstantial enough to contribute to
the abrupt boom in January production numbers. This
most likely means that January’s industrial production data spike
had been based on single industry: drugs and medicine!
So
tweak one industry’s growth numbers to project a boom????!!! (looks
like the PSEi)
Yet
a colossal improvement in manufacturing activities should have eased
on the prolonged deflationary
pressures on producer prices or prices of manufacturing inputs.
But
that didn’t just happen! The government’s measure of January’s
producers’ prices shows of a -6.0% year on year and -1.5% month on
month. Such hardly signifies any improvement from the previous
rates at all (see left). In short, from the perspective of producers’
prices, there was barely a tinge of demand pick up in production
activities.
Moreover,
production activities need to be funded. Question is how was
January’s industrial production boom financed?
Seen
from the banking system, while the January’s loan growth to the
manufacturing sector modestly improved to 5.49% year on year, this
seems hardly the scale of funding required for the sharp upturn in
industrial activities (see right). As example, the banking sector’s
loan to the manufacturing industry posted an 8.5% growth rate in June
2015. But industrial growth rate over the same month was a NEGATIVE
7.3%!
So
if the government’s numbers were a reflection of reality, then this
means financing came from elsewhere. Perhaps it was derived from the
pockets (savings) of the owners of the manufacturing outfits. Oddly,
just how can this happen when in 8 out of 9 months (as of December)
industrial output showed contraction, or when manufacturers must have incurred sustained financial losses?
Perhaps
too that credit was provided by non-banks: credit from suppliers,
buyers or other non bank entities.
You
see, in the statisticians’ world, prices have little relevance on
how resources are allocated. So they end up with numbers on causally
related variables which are brazenly self-contradictory.
Government’s
Building Permit Data Shows of A Surprise: Stagnation in Construction
Activities in 2015!!
In
today’s world, every headline with a PLUS sign on it has served as
a Pavolvian conditioned stimulus to prompt the public to panic buy
the stock market
The
government declared that approved building permits construction
activities expanded by 7.5% in Q4 20152.
So media and their favorite experts used this as pretext to declare
on how splendid construction activities had been.
Yet
positive headlines are great to a crowd who do not bother to ask.
On
a quarterly basis, year on year growth performance by ALL categories
(with the exception of the number of residential permits), namely,
number of approved permits, floor area and total value for
residential and non-residential permits have been TRENDING
DOWN
for the last two years!!
The
government’s data revealed that 4Q’s construction residential
permit growth at 14.7% had primarily been driven by single-type
houses (25.4%) and other types of residential constructions (69.6%),
while duplex/quadruplex
(-51.1%), residential condominiums (-34.8%) and apartment/accessoria
(-5.6%) dragged down on government’s index.
Note
of the pivotal shift in last quarter’s activities particularly from
business residential construction to private, most likely household,
construction.
Meanwhile,
the 5.6% growth in non-residential construction permits were mostly
from commercial
buildings (12.6%) and other types of non-residential constructions
(143.8%) as “ all other types of non-residential constructions
showed decrements in number”.
Since
the government uses the number
of permits to discuss or report on the headline activities, it is
easy to generate growth numbers (upper window). However, when
seen from floor area and value those growth scenarios drastically
changes.
Over
the same period, in the context of floor area, residential growth
shrank by .92% while non residential growth bulged by 7.75%. Total FA
growth inched up by only 2.5%! (see middle pane)
Data
of construction building permits from PSA
can be seen here.
In
terms of value, residential growth eked up by only 1.16%, while
non-residential growth contracted by a huge 6.47%. Total value
shriveled by an astounding 5.24%! (lower pane)
The
significant DECREASE in floor area and the NEGATIVE value from
government’s 4Q construction building permit activities points to a
hefty reduction of big scale construction projects which had been
partly offset by the G-R-O-W-T-H of mom and pop projects.
This is aside from spending on private household construction.
In
short, PSE companies have spent significantly LESS in securing
construction permits during the 4Q! Awesome!
Moreover,
4Q construction activities, which was negative in value based on
approved permits, has hardly reflected on government’s
own metric for the industry’s official GDP.
When
I aggregated the quarterly numbers to generate its annual
performance, we get a bigger surprise: The total number of
construction approved permits popped up by a puny 2.61% in 2015!
Meanwhile, Floor Area declined by a marginal -.77% as Value plummeted
by an awesome 10.8%! (see left)
Nice
G-R-O-W-T-H numbers eh???
And
it has been interesting to see how the rate of growth in the banking
system’s construction loan portfolio has somewhat dovetailed with
building permits. (see right)
The
peculiar thing has been that despite the substantial decrease in
construction activities (again based on building permit values), the
banking sector’s portfolio to the construction industry continues
to sizzle (28% January).
Just
where has all those mountain of borrowed money been going?
On
the other hand, has the jump in the banking system’s January real
estate loans been about the financing of 4Q’s boom in single-type
houses and other types residential (non-condo) projects?
The
government’s approved building permits accounts for just one of the
interesting self-contradictory statistics which they have used to
inflate their imagery.
Yet
the numbers above hardly has been a manifestation of a meaningful
uptrend in G-R-O-W-T-H but in the contrary.
BSP’s
Politically Correct FDI Report and the Foreign Exchange Inventory
Spike in February GIR Data
Of
course it has not just been permits.
The
BSP reported FDI performance for the month of December and for the
year 2015.
The
public was told that FDI was about G-R-O-W-T-H.
From
the BSP3:
(bold mine) Foreign
direct investments (FDI) stood at US$273 million in December
2015. This developed
as investor sentiment remained positive amid
the country’s favorable growth prospects. More than half of
the FDI net inflows during the month were investments in debt
instruments, consisting largely of intercompany borrowing/lending
between foreign direct investors and their subsidiaries/affiliates in
the Philippines which amounted to US$140 million. This level
was seven times the US$20 million registered in December 2014.
The other FDI components also posted net inflows
The
BSP selectively picked on areas that registered G-R-O-W-T-H and applied rationalization on these as reflecting 'positive sentiment'. But at the same
time, they deliberately omitted on the overall performance. Of
course, they understand that people are hooked to headlines and not
on the details.
But
the BSP
hid the fact which from their
own table reveals that December FDI crashed by 51.3%! Except
for Debt instruments, which inflated by a titanic 617%, every
category registered big declines (see above). So given the begging
the question premise where positive data equals positive sentiment. Then from
December perspective this means the opposite, investor sentiment was
NEGATIVE.
On
the other hand, the BSP reported that 2015 FDI was “steady” even
when it was down by a marginal .3%.
As
one would note, decline, loss, decrease and or negative numbers has
represented a social taboo, so such numbers has to be sanitized in
the context of G-R-O-W-T-H.
So
negative is positive, low is high, few is many.
And
such manipulation
of the public’s mindset reinforces why the Philippine economy has
been a bubble. Hardly
anything of what one sees appears real!
And
notice too that the bulk
of FDI share has been on debt financing rather than from equity. Such
underscores the increased leveraging of the system.
Meanwhile,
the BSP also declared that Philippine GIRs increased to $81.3 billion
in February4:
“Preliminary
data showed that the country’s gross international reserves (GIR)
rose to US$81.30 billion as of end-February 2016, Bangko Sentral ng
Pilipinas (BSP) Governor Amando M. Tetangco, Jr. announced
today. This level was higher by US$0.61 billion than the
end-January 2016 GIR of US$80.69 billion due mainly to revaluation
adjustments on the BSP’s foreign currency-denominated reserves and
gold holdings resulting from the increase in the price of gold in the
international market, net foreign currency deposits by the National
Government (NG) as well as the BSP’s income from investments
abroad. These were partially offset by the BSP’s foreign exchange
operations and payments made by the NG for its maturing foreign
exchange obligations.”
Revaluation
in gold prices had indeed accounted for $774.8 million increase in
the BSP’s February
GIR. But the increase in gold priced holdings has been more than
neutralized by liquidations to the tune of $791.8 million in the
GIR’s “foreign investments”.
This
means that the bulk of the increases in February GIRs of $608 million
have largely stemmed from the BSP’s foreign exchange holdings,
which skyrocketed by an astounding $645 million to $1.47 billion!
Yet
the foreign exchange stockpile, at again $1.47 billion, represents
almost the same October and November 2013 levels at $1.35 billion and
$1.5 billion respectively. (see top chart)
However,
the spike in the foreign exchange stockpile in 2013 coincided with
the peak of the USD Php in December 2013 at an
average of 44.93. Likewise, these coincided with the 2013 peak in
GIRs.
Considering
the USD Php February zenith of Php 47.64, has the BSP aggressively
intervened in the USD Php market by selling its USD hoard or
reserves? Perhaps such has been the reason for the substantial
liquidations in foreign investments? And in order to offset the USD
inventory loss and maintain or preserve on the GIR accounting
position, has the BSP been borrowing foreign exchange through the
swap markets and simultaneously hedged such borrowings with currency
forwards?
Philippine
GIR were reported in October at $83.607 billion and in November at
$83.572 billion in October and November 2013. In January 2014,
reported GIR fell to $79.4 billion or a drop of about 5% from October
and November levels.
Since
the structure
of foreign exchange swaps usually involves very short time frame,
if the BSP had indeed used derivatives to enhance GIRs, will we see
such GIR numbers drop in the coming months (in May or in June)?
The
BSP seems lucky to see a return of the risk ON conditions. Otherwise
they may have to increase its foreign exchange borrowing.
Unintended
Consequence: ECB’s Bazooka Powered the Euro and Asian Currencies
Higher!
And
speaking of foreign exchange, like the Phisix, the peso
roared back to reclaim year to date gains (+.92%).
The
USD peso sunk by .7% as the region’s currency has rallied strongly.
The Thai baht and the South Korean won rallied the most this week.
Yet
it has interesting to see how the markets reacted to a desperate ECB
which last week announced more “shock and awe”.
Last
week’s financial market rescue package by the ECB included
interest rate on main
refinancing operations of the Eurosystem reduced to zero. Interest
rate on marginal
lending facility slashed by .5 bps to .25% effective March 16.
Interest rate on deposit facility further decreased by 10 bps to -.4%
effective March 16. QE will be increased by €20 billion to €80
billion which starts on April. Investment grade corporate bonds will
be included in the asset purchase program, and “a new series of
four targeted longer-term refinancing operations (TLTRO II), each
with a maturity of four years, will be launched, starting in June
2016”.
But
instead of the weakening, the euro surged by an amazing 1.1%.
European
and US stocks gave back its early gains last Thursday when ECB’s
Super Mario suggested that “there
would be no further cuts”.
But
then perhaps stimulus addicts realized that “hey that’s what’s
we’ve been waiting for” so the monumental push on Friday. But the
risk ON rally hardly erased the euro’s gains.
Moreover,
the ECB’s bazooka only furthered the weakness in USD Asia. This
only reveals of more short covering of ex-USD currencies and assets
And
of course, the weak USD translated to risk ON which means temporary
license for panic buying.
Next
week, the FED (March 16) and the BOJ (March 14) will hold their
respective meeting. And this will further stimulate gambling addicts to drool
over the possibility of more crisis resolution subsidies.
Phisix
7,100: EIGHT Issues Have Led the Vertical Rally
There
has been no further proof than the intensifying conviction signifying
the fear of missing out than the number of firms attaining record
highs.
Yet
it is one thing to see an increasing tolerance for risk. And it’s
another thing when risks have been totally dismissed as inexistent.
And the latter is what characterizes the Fear
of Missing Out (FOMO): Emotions rule over reason.
Since
most issues have emerged from, or have still been fighting off their
respective bears, the yoke of the astounding vertical 16.7% climb of
the headline index from the January 21 lows have been a few of its
principal bearers.
First,
a short description of this week’s actions. The PSEi soared by
another remarkable 2.89%. This week’s sharp ascent erased and
reversed the year’s deficits to register a positive 2.11% return.
Next.
technically speaking, the PSEi continues to approach the resistance
threshold of the post August 2015 crash levels (right rectangle).
This is aside from the breach of the resistance levels that paved way
for two unsuccessful attempts to break the May 2013 record of 7,400
during the last quarter of 2014 (left rectangle).
In
short, the current runup marks the fourth
occasion for the PSEi to visit 7,100.
But
in the current instance, the degree of ascent has been even more
intense than the 2013 peers. In response to the bear market in August
to October of 2013, the PSEi catapulted to a relative lesser 15.63%
gains in 35 days. Likewise, in March the charge to the May 2013
record at 7,392 saw the headline index up by 15.15% in also 35 days.
Unfortunately,
for the two 2013 episodes, the vehemence of such runups had been
fated to fail. And it took a less impassioned incremental approach
for the PSEi to recover from the 2013 debacle. To be specific, it
took THREE attempts in 19 months for the PSEi to surpass the May 2013
highs!
Also
current overbought conditions have only been extended from this
week’s overdrive.
Bulls
will highlight the point that the Phisix have now reached the 200 day
moving average. But so what?
A
break of the 200 day moving average does NOT GUARANTEE a return to
record highs. If the previous MAJOR bearish patterns had been foiled
by circumstance and by the deliberate managing of the index, what
makes a break of the 200 day moving average so unique? Sheer belief
by the consensus? The same consensus whom were totally blind to the
recent crashes? By the way, those major bearish patterns, e.g. head
and shoulders have not been totally reversed or negated yet.
And
as previously discussed, bear
market rallies tend to be ‘fast and furious’.
More
than this, despite the supposed strength of the Philippine economy,
the Phisix endured two major crashes in a span of 6 months,
specifically in August 2015 and in January 2016.
In
addition, from a historical context, the odds of a full recovery from
incidences of V-shaped reactionary recoil from deep bear markets have
been minute.
Even
more, stock market are more than just solely about price actions.
Instead, stock market prices should account for the underlying
value
of the security it represents. As the sage of Omaha Warren Buffett
once said, price is what you pay, value is what you get.
To
revert to the FOMO.
Despite
the frenzied blitz, the same headline index has still been off or
remains 12.7% away from the April 2015 8,127.48 record.
Yet
TWO issues have now reached RECORD levels while SIX other issues are
poised within striking distance—with 8% or less—from the past
watermarks
In
particular, the TWO critical issues, JGS and AEV, combined had a
market share weight of 11.43% as of Friday’s close. On the other
hand, the market share of the other SIX PSEi issues—SM, SMPH, AC,
JFC, GTCAP and MPI—on path to a fresh record, totaled 31.63%.
In
aggregate, the market share weight of these 8 issues comprised 43.06%
of the headline index.
And
to extend the perspective, the accrued weighting of the top fourteen
PSEi issues excluding PLDT as of Friday has been 74.15%.
In
early 2015, the string of record milestones set by many heavyweights
had been when the PSEi was about 5% away from the record highs, or
during the landmark highs.
In
short, the fundamental reason for 7,100 or why there has been a 16.7%
vertiginous rebound from the January lows, has been mainly due to
these EIGHT issues that virtually weightlifted the headline index to
its current state.
And
by elevating the index, this created a spillover effect to the
general markets.
Said
differently, for now, the fantastic eight spawned a rising tide lifts
most boats phenomenon.
This
week, advancers beat decliners by another wide margin of 184. (upper
left window)
Advancers
have dominated the market’s sentiment in 6 out of 7 weeks. And this
week marks the fourth consecutive week for broad market gains
Also
among the 30 PSEi issues, 26 rose while only four issues led by PLDT
declined. The lopsidedness of advancing issues, for firms which
constituted the headline index, has occurred in 5 out of 7 weeks.
Additionally,
rising tide has apparently percolated to the banking sector which was
the week’s best performer. (upper right window) Not even negative
yield spreads would seem to stop a rampaging badly bruised bull.
Curiously,
in spite of the ferocity of the current advances, current peso
average daily volume remains lackluster
relative to the two prior periods where the PSEi traded at current
levels, in particular, from April to September 2014 (6,400-7,400) and
August to December 2015 (trading range of 6,800-7,300). (Lower pane)
In
short, the present ripfest has been underpinned by a stunning low
volume which only reveals of its lack of conviction, and more
importantly, DESPERATION to bring back the old times!
Bidding
Frenzy Amidst Decaying Fundamentals: Ayala Corp’s Topline Revenue
Fumbles! AEV Posted Decline in 2015 Income Growth Rate!
And
the aggressive bids have only been pushing up valuations to nosebleed
levels.
Put
differently, all frantic pumping and pushing during the past several
weeks, has virtually shunned the significance of valuations.
Fascinatingly,
government’s bullish G-R-O-W-T-H headlines, as discussed above,
have incited even more dash for derring-do bids even when G-R-O-W-T-H
has been nothing but a superficial image.
Based
on Friday’s prices relative to the PSE’s 3Q earnings report
(monthly January 2016 issue), a commanding majority of PSEi issues
have Price to Book Value (PBV) that amazingly have been significantly
overvalued!
And
again, the concentration of such valuation excesses has been on
issues within the top 15!
And
ironically, I have pointed out last week, such hysterical pumping
comes amidst deteriorating fundamentals that have spread from the
periphery to biggest issues. PLDT has reported losses in 4Q and a
significant drop in net income for 2015. SM, which ironically has
been part of the febrile pumping, has posted ZERO net income growth
for 2015!
Positive
headlines always appeal to those who never ask.
Yes
this week, Ayala Corp disclosed
that 2015 have been another year of G-R-O-W-T-H.
But
what they didn’t say was, LIKE SM, the firm’s top line growth has
been falling dramatically for the past two years (see upper window)!
Their
disclosure noted that consolidated revenues expanded 11% in 2015.
That’s looks neat, until one realizes that this has been 30%
off from the 15.6% growth in 2014 and half
the rate of 22.09% in 2013!
This
means that while
earnings have looked impressive from the outside, they have been
showing signs of entropy in the inside.
To consider, why has the topline been hardly manifesting optimal
contributions from the massive capacity additions? Or what has
happened to the enormous (10%+) supply expansions?
Moreover,
the company’s earnings seem to have shifted. They seem to have
become dependent on contributions or supplemental revenues to the
topline, particularly profits from joint ventures and partnership,
interest income and others, aside from improvements on business costs
rather than from core revenues (see detailed topline performance in %
during the 9 months of 2015 on lower windows)
In
short, over the past two years, the core businesses’ topline have
been contributing less
to AC’s earnings. So how sustainable can this be?
And
like SM, Ayala Corp’s topline has either been weighed by too much
competition or by demand slowdown. Or at worst, it could have been
both.
The
fact that the topline has been dwindling in the face of massive
supply expansions simply reveals that excess capacity has emerged at
the margins.
And
considering that both of the biggest consumer firms, SM and AC, have
been faced by the same predicament, bulging excess capacity
extrapolates to an INDUSTRY dynamic!
And
an
outgrowth of excess capacity translates to eventual diminished
domestic demand!
And
add to the string of downcast reports in 2015 has been energy holding
firm Aboitiz Energy Ventures. AEV’s
NET income for 2015 at Php 17.7 billion was LOWER 4% from Php
18.4 billion! Stunningly, AEV’s share prices surged to a near
record! LOWER and ZERO growth now serve as catalyst for frantic pumps!
And
this makes 3 out of the top 10 PSEi (PLDT, SM, AEV) firms to
underperform in 2015. Again THIRTY PERCENT of PSEi has performed
below par.
Yet
will a new record high in stocks abolish or reverse all the surfacing
intrinsic defects? Or will this set up for even more bouts of volatility?
____
1
Philippine
Statistics Authority Monthly
Integrated Survey of Selected Industries : January 2016 –
March 10, 2016
2
Philippine
Statistics Authority Construction
Statistics from Approved Building Permits for Fourth Quarter 2015
(Preliminary Results) March 9, 2016
3
Bangko
Sentral ng Pilipinas, FDI
Reach US$273 Million in December 2015; Full-year Level at US$5.7
Billion March 10, 2016
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