Underperformance
of the Top 5 Shows Why PSEi Still Trades Below April 2015 Highs
We
will not have any more crashes in our time.
-
John Maynard Keynes in 1927
There
will be no interruption of our permanent prosperity.
-
Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12,
1928
Stock
prices have reached what looks like a permanently high plateau. I do
not feel there will be soon if ever a 50 or 60 point break from
present levels, such as (bears) have predicted. I expect to see the
stock market a good deal higher within a few months."
-
Irving Fisher, Ph.D. in economics, Oct. 17, 1929
We
feel that fundamentally Wall Street is sound, and that for people who
can afford to pay for them outright, good stocks are cheap at these
prices."
-
Goodbody and Company market-letter quoted in The New York Times,
Friday, October 25, 1929
Quotes
from Gold-Eagle.com
As
Asia’s markets tumbled over the week to reflect on global
developments, only two bourses were left unscathed. Aside from
Pakistan (+4.97%), the Philippine benchmark, the PSEi, even shined by
advancing 1.5%.
The
Sauve
Qui Peut
Pump and Reversion to the Mean
Given
the breathtaking 1% marking the close pump last Monday, designed to
project the PSEi’s exceptionalism, which was backed by another .36%
end session push on Tuesday, it’s easy to construe that price
fixing has mainly been responsible for this week’s outcome. Note
1.36% marking the close returns relative to the weekly 1.5% equals
91%.
The
Manipulator’s contemporary creed: the PSEi must always rise and
must not be permitted to go down! We have reached NIRVANA! So again,
they will do whatever it takes to pump the index back to the April
2015 record highs even if this should mean even wilder upside
actions.
Since
the banks, Ayala Land and URC have weighed on the PSEi’s thrust to
a new record (based on chart trends), this week’s runup was
primarily focused on them! The banking trio, BDO (+5.02%), BPI
(+2.32%) and MBT (+1.81%) PLUS Ayala Land (+3.37%) along with URC
(+7.2%) were responsible for the gist of this week’s gains!
BDO
BPI
URC
ALI
And
as one would notice, vertical price actions have essentially shifted
to these issues. (see charts above)
It’s
truly depressing, if not revolting, to see how Philippine capital
markets have been totally debauched in order for some segments of the
society to continue to benefit from the invisible redistribution
process channeled through negative real rates policies of the BSP.
Nevertheless,
such represents one of the very essential traits of the boom-bust
cycles which economic historian Charles Kindleberger vehemently
warned
about. Mr Kindleberger admonished that many resort to cheating or
swindling in order to sustain the status quo premised on the motto of
sauve
qui peut (may
he save himself, whoever can).
So
to negate the effects of the recent crash, the frantic vertical
pumping of the PSEi appears emblematic of such progressing malady.
Even
with the massive distortions brought about by actions directed at
sauve
qui peut, the
history price actions indicates that all such collusive efforts will
eventually be in vain. That’s because reversion to the mean has
almost always prevailed. And reversion to the mean won’t happen
only unless ‘this time is different’. Well is it?
As
shown in the above chart, parabolic price spirals or vertical
liftoffs in all four issues over the three years have all FALTERED.
And
the common repercussion from forcible price escalations had been the
Newton’s Third Law of Motion where “For
every action, there is an equal and opposite reaction”. Or to
paraphrase Newton: For every hysteric price pumps, there has been an
almost equal and opposite reaction via price dumps! The obverse side
of every mania is a crash.
PSEi
7,600: Top 5 Relative Underperformance
Let
me further expand this thought with a discussion of relative
performance between PSEi in 2015 and 2016.
First
some notes.
As
of Friday’s close, at 7,622.07 the PSEi remains 6.21% OFF the April
10 2015 high of 8.127.48.
The
PSEi rose to April 2015’s record high in an incremental mode while
today’s action has been from violent
price surges.
The
current 5 month string of price spikes came in reaction to the 2016’s
or New Year’s three week crash.
The
ratio of returns of PSEi issues simply illustrates of the relative
performance of PSEi issues, as of Friday, compared to the runup to
the record high of 8,127.48 in 2015.
Further
note: The above are calculated from a year to specific week
baseline—weekly close of April 10 2015 as against the weekly close
as of June 17, 2016. A ratio of 1 means equal performance. A ratio of
less than 1 equates to underperformance by the issue in 2016 relative
to 2015. Whereas the ratio of over 1 means outperformance.
Five
issues of the top 15 have massively outperformed in 2016, namely JGS,
AEV, BPI, JFC and MPI. These are the issues that have mainly
catapulted the headline index to the current levels.
With
the exception of JGS, because these issues have mostly been from the
latter half of the top 15 PSEi weighting scale, the impact of their
record high prices have been insufficient
to have pushed the headline index to a new high.
In
the meantime, 5 issues have significant deficits (<.6%) but still
positive returns, specifically GTCAP, BDO, MBT, ALI and SM. One issue
has had a negative ratio: PLDT (which showed of negative returns for
2016).
Considering
that the biggest two market cap issues have underperformed, this
explains the gist of the distance between April 2016 record highs and
the current levels.
Yet
the biggest drag has been the fifth rank PLDT, which so far has
delivered a negative year to date return (despite a three week 22.34%
ramp!)
So
the subpar comparative results of 3 of the 5 biggest market caps has
contributed to the below record Phisix.
This comes even if SM has reached record highs last May 2016.
This
can be expanded when viewed from the aggregates
The
scorecard of returns of the top 5, as of Friday’s close, at 10.44%
relative to their returns in 2015 at 15.196% or the difference of
4.8% again reveals why the PSEi has still been below the April 2015
record.
Note
that the top 5 issues carry a cumulative market weight of 38.41% as
of Friday.
Considering
that the biggest outperformance comes from the below the top 5
ranking but still within the top 15, the relative returns for the top
10 and 15 has narrowed—when seen from 2015 and today.
Yet
in spite of the towering gains by SMC, PCOR and BLOOM, the average
gains of the lower 15 of the PSEi index has been marginally inferior
today at 9.48% relative to 9.66% in 2015. That’s because such
biggest surplus returns, which came from the lowest rung, has only a
combined weighting of only 2.15%. Whereas the underperformance of
bigger weight issues from the lower half of the PSEi index, as EDC,
ICT, MEG, AGI and DMC, has neutralized those gains.
Nonetheless,
the market cap weight of the last 15 issues have accounted for only
19.06%. This
tells why the performance of these issues has hardly contributed
meaningfully to the overall conditions of the PSEi
Yet
the PSEi average and weighted average returns has stark
differences.
Seen
on the average returns for the overall PSEi issues, there has been
little difference (-.71%), at 10.52% year to last week (2016)
relative to 11.232% in April 10 2015.
So
if the PSEi climbs higher where average returns of the broader issues
continue to escalate then average returns may exceed the 2015 highs
returns even if PSEi remains below
the watermark levels.
But
seen from the market cap weighted returns of the PSEi based on year
to the week ending April 10 2015 at 12.4% as against year to date of
9.64% (as of Friday) the underpeformance of the top 5, has become a
lot more pronounced. Again that’s because of the top 5 subpar
returns.
In
short, the
current seeming concerted thrust to violently inflate prices of TEL,
ALI, the banks, and URC seems part of the covert exercise designed
for the PSEi to forcibly reach its April 2015 record.
Yet
as price pumps to bolster the headline index continues, the more
prices have become dissociated or detached with reality. As one can
see above, massive pumping has lifted PERs to 30,40 and even close to
50 levels!
As
of Friday’s close, the average PER of the PSEi risen to 19 whereas
the weighted PER was at 24.8%!
Who
will be Right: Falling Peso Rising PSEi?
Finally
the sauve
qui peut
pump has led to a bizarre convergence of the usually divergent USD
php and the PSEi.
Gains
accrued by the peso the other week was neutralized when the USD Php
advanced .7% this week to Php 46.445
The
USDphp usually moves in the opposite direction relative to the PSEi.
Again the latter’s peculiar convergence must have likely been from
the concerted pumping on the PSEi. Or has previous divergence now
transformed into a convergence? From what grounds?
Again
Newton’s Law: The obverse side of every mania is a crash!
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