Below is a series of test post.
The Phisix rallied by 1.59% in a highly volatile week.
Yet it’s not the headline numbers that counts. Instead the main focus should be what’s been happening WITHIN the PSE. Particularly, the intensifying destabilizing speculative actions that has gripped overall trading activities at the PSEi!
Vertical upside moves which consequently transformed into crashes should serve as writings on the wall.
Two issues suffered crashes this week: Meralco and JG Summit.
Meralco plunged 6.6%. This compounded on last week’s 5.52% loss for a total of 12.12%. From the recent peak to Friday’s close, Meralco has endured a 13.5% dive! And the crash didn’t just appear out of nowhere. It was an offspring to a parabolic move. (see upper window chart)
Yet this week’s activities has seemingly resonated with the October-November 2015 mini-boom bust cycle where Meralco share prices also plummeted by 13.9%. As in the March to May episode, it was the same sharp ascent (parabolic move) that has led to its crash in October-November.
Meralco has even had a bigger boom bust cycle in 2013. MER’s share prices soared from around Php 250 to Php 394 (57%) in just 6 months! Unfortunately, destabilizing speculation meant that ALL gains acquired over this very short period had to be RETURNED to the market!
MER’s share prices regressed back to its original base by February 2014. The fundamental reason attributed to this volatile punt was the buyout of a 27% stake by JG Summit in Meralco from San Miguel.
Yet current manic turned into panic developments in MER have even been more intense with JG Summit.
Since the January’s nadir, share prices of the Gokongwei flagship have virtually gone berserk. Not only has JGS gone parabolic, since post elections, JGS share prices have rocketed vertically! (see lower window)
So it would not be unexpected for panic buying to morph into panic selling. All it needs was a trigger. And the said event was supposedly incited by Gokongwei’s selling of a portion the firm’s share for “estate planning purposes” (see my explanation in my next message)
Yet in no point in the current cycle (2003-2016) has JGS moved in such stunning fashion.
So what goes up must come down.
Despite the two huge selloffs, and most especially, the selling pressure on the fourth biggest market cap issue JGS, the PSEi remained unscathed.
Reason?
Like in the PLDT episode last February, index managers had to make sure that such crash would remain isolated. So they resorted to the massive pumping of other key issues or the other heaviest market cap issues to neutralize the effect from JGS’ meltdown.
No less than FIVE of the EIGHT biggest market cap issues posted gains of 4.5% and above this week!
If we include the top 15, 7 issues generated over 4% returns this week!
And the distribution of gains has been virtually skewed towards the top 15. The average return of the top 15 was 2.41%, while the average gain of the next 15 was only .64%!
Based on returns, the top 15 had 7 issues with over 4% as against only 3 issues for the next 15!
Such may be seen as circumstantial evidence of the concentrated coordinated actions engineered to pump the index.
The low volume-low liquidity of trade activities exposes the vulnerability of the PSE to manipulations. This has been most evident with the frequent and rampant use of "marking the close". Add to this, of course, are the regulators whom have been asleep at the wheel or possibly "captured" by entrenched manipulators. Nonetheless, manipulations enhance on the imbalances developing in the system.
Numbers alone will not do justice to the overall price activities of specific issues
The above have accounted for as absolutely breathtaking pictures or depictions of mania and manipulation in motion.
And these three (AEV, AC and SMPH) have not been isolated. The biggest market cap SM shares the same features with nearly equal intensity. Others like JFC, GTCAP, MPI and AP also manifest of the same symptoms but at a lesser degree.
These are signs of imbalances and maladjustments that seem to have already reached epic or climactic proportions. Thus, vertical or near vertical moves are vulnerable or susceptible to exactly the same fate that has afflicted JGS and MER.
And such destabilizing speculations combined with market manipulations have signified as products of the increasingly desperate and frantic attempts to push the Phisix beyond 7,400!
As reminder, record 7,400 was first etched in May of 2013. This means 7,400 has signified a three year old resistance level which index managers have been attempting furiously to engineer a breakthrough during the last three years.
They temporarily succeeded in the 1Q of 2015 to bring the Phisix to 8,127.28 in April of 2015. But apparently, the breakout failed to hold. Hence, the PSEi collapsed back to 6,100 last January.
Now or current activities represent the FIFTH attempt. Yet what is of paramount importance is not merely a breakout, but the sustainability of the trend. That was the lesson of April 2015’s 8,127.48. Yet Philippine stocks have reached 1996 levels in the context of valuations which proves to be a critical barrier for such an undertaking.
For now, cracks in the likes of February’s TEL, and today’s JGS and MER has been interspersed and thus contained. But what happens when such fissures spread or escalate? Or what happens when index managers lose control?
Two crashes happened within the span of 7 months or in the 2H 2015 through January of this year. Given that current actions have even been more radical than in 2013 and 2015, then the risks of a market crash is even HIGHER now than in 2013 or 2015!
For now, it may be true that the crashes of MER and JGS may be partly recoverable. That’s because sentiment is largely a manifestation of risk appetite. And the present state of risk appetite has been underpinned by overconfidence.
But sentiment is capricious, which consequently means that it is prone to instability and thus a breakout may be ephemeral. As proof, the dominant sentiment in the current environment runs in antipodal to that of December 2015-January 2016. Then it was fear. Today it is GREED…at the extremes
Most importantly, sentiment cannot, over the longer period, supplant the basic function of stock markets as discounting mechanism of the expected stream of future cash flows.
In kernel, stocks prices will remain anchored on fundamentals.
So unless fundamentals improve FASTER than price based returns, any further push on today’s overvalued market will only exacerbate on the present mispricing dynamics. Prices will move further away from reality. Yet the bigger the gap, the more vulnerable to a violent reversion to the mean
Understand that social policies affect the economy, the credit environment and financial markets. And this IS the PRINCIPAL reason why the stock markets has transmogrified into a gambling casino, as evidenced by severe overvaluations and extreme greed sentiments.
At 7,411, the PSE bears a lofty average PER of 18.34 and the average market cap weighted PER of a horrifying 24.34*! In short, the market is paying Php 24 for every peso earned. And much of the peso earned by these firms have depended on leveraging.
* the PSEi index is constructed from the ranking of its composite constituents based on the market cap weights. Thus PERs, Book Values and other financial ratios MUST reflect on the same distribution of market cap weighting and NOT just the average.
The BSP’s negative interest rate policies have spawned and let loose a monster bubble which has now spilled over to the political spectrum.
No comments:
Post a Comment