PSEi 7,650 and the Philippine Peso in the Shadow of Brexit and the Faltering Yuan

Developing internal contradictions at the Philippine financial markets have been truly amazing.

Manipulation, Brexit and the Ignorance Fallacy

Index managers continue to force the PSEi higher with the aim to beat the 2015 highs even when political risks both here and abroad have been mounting.

Friday’s stunning 5.88% swing is an example of how Philippine stocks have become playground of manipulators.

The Phisix had a strong opening to soar by 1.08%. When the Brexit news emerged, the Phisix made a roundtrip, where all gains had been erased. Gains turned into losses and the losses intensified for the PSEi to hit an intraday low 7,538. At the said level, the PSEi was down by -2.5%, immediately after lunch.

But then, the afternoon delight pumping operations came into action. Panic buying emerged to chop off losses to just 1.55% at the pre-market intervention phase. At the runoff, marking the close caused the PSEi to close lower by only 1.29%. Or marking the close shaved .26% losses!

Manipulators want to make the public believe that the Philippines would be immune to any exogenous shocks. And that Philippines stocks represent economic G-R-O-W-T-H and prosperity even when they are symptoms of brazen manipulations and popular delusions or mania.

There is no country in the world that has a stock market that sees marking a close as a regular feature. Not even China and Japan where interventions at the stock market by the government represents part of the official policy.

Naturally, media came out to say that Brexit equals little risk for the Philippines because of “macroeconomic stability”.

So once again they go on to chant or recite statistics, as if these numbers are talismans that would successfully drive away evil spirits. Yet these are historical numbers. And numbers are subject to change in the face of changing events.

They said the same on Greece and on China. And because such events have been temporarily curtailed, they have come to believe of the invincibility of the Philippines. It has been presupposed that because such adverse climate has not yet happened, it WON’T happen. They think that the absence of evidence is enough to argue for its resilience. Yet this represents the ignorance fallacy or “absence of evidence is not evidence of absence.”

For the Mainstream: Prices Have Been Unanchored to Fundamentals

I just received a note from a bank urging their depositors not to keep their money idle and have them work through the financial markets through the various funds they offer.

 

It’s really sad and unfortunate to see how to such institutions sell products to the gullible public, based on seeming misinformation, by ignoring valuations and the attendant the risk involved. They instead switch the public’s focus on price trends as if prices have been unanchored to the fundamentals of securities. And they seem to think that corporate fundamentals have loose ties or connection with the domestic and international economic conditions.

The two month PSEi pump as shown that in the context of price earnings ratio (PER), PSEi 7,650 has NEVER been about G-R-O-W-T-H but about grand deceptions channeled through massive price multiple expansions!

At 7,650, PERs of market cap weighted PSEi has now reached a treacherous nosebleed levels at 24.92! Such PER levels has signified a few points away from the highs reached during 1996! While the average PER of PSEi 30 has climbed back to 19.12!

But of course who would like mess with an entrenched public conviction that the Philippine bull market is impervious to risks?

Yuan Movements will Reflect on the Peso 

 

But then again, currency traders appear to disagree with stock market manipulators.

Down by 1.08%, the peso was the second worst performer after India’s rupee -1.32% (partly due to the sudden departure of central bank governor Ragu Rajan). The USD php closed at 46.495 last Friday from the other week’s 46.445.

Note that the peso and stocks has had an inverse correlation, where the rise in the USD eventually meant downward PSEi and vice versa.

The peso has essentially tracked the Chinese offshore yuan.

So if the yuan persist to weaken in the coming days, which I expect (given that Brexit will likely aggravate China’s dollar “short” conditions), then the peso will also likely reflect on the yuan’s weakness.

Now of course, stock market manipulators can do what they want to do.

But such contradictory forces will imply that one of the anomalies will have to be repriced…most likely in a violent fashion.