Underperformance of the Top 5 Shows Why PSEi Still Trades Below April 2015 Highs

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?

Now who would be wrong, the PSEi or the USD php?

Again Newton’s Law: The obverse side of every mania is a crash!