Pls don’t fall for claims that post Presidential election returns will mechanically be positive.
New administrations do not signify as free lunches.
Stock markets are not merely about prices and price pumping. Stock markets are underpinned by claims on future income streams. Besides, stock markets are also titles to capital goods. Therefore, prices should incorporate such capital formation process (and not bubbles which means price misalignments)
And it isn’t just statistics that matters (or presentations which shows election equals returns y-o-y) as all historical events had been underpinned by unique circumstances. Understand that most of these numbers have been cherry picked.
FVR’s electoral victory in 1992 which led to the 1993’s behemoth 179% rally in the Phisix emerged out of historical monumental low valuations due to the following factors (but not limited to them):
1) The Phisix collapsed in 1979 and stagnated until the Marcos regime was ousted in 1986.
2) The Philippine economy also suffered a balance of payment crisis in 1984 where external debt had to be restructured which had been signed in 1984 by president F Marcos.
3) The old central bank Central Bank of the Philippines which suffered sustained deficits (over Php 300 billion in liabilities) had to be replaced by the BSP in 1993 via the New Central Bank Act
4) The political economy had to endure repeated coups which hounded Cory Aquino regime
5) Natural catastrophe such as 1990 Baguio earthquake and the 1991 Pinatubo eruption
These factors virtually kept very cheap stocks from advancing to reflect on improvements under the Cory Aquino regime.
Dr Marc Faber in his book Tomorrow’s Gold (p 215) explained how incredibly cheap Philippine stocks had been in 1986
I can recall several instances when stocks in high-inflation economies became dirt cheap: The Philippines in 1985/86, Argentina in 1989 and Peru and Brazil in 1990. In the Philippines during the early 80s, high inflation and poor economic, social and political conditions under the Marcos regime had driven down stock prices and the value of the Peso. By 1985, the Commercial Stock Index was down by 76% in US Dollar terms from its all time high of 1980. The Mining Index had declined by 94% and the Oil Index by 97%. The combined market capitalization of the six biggest companies (at the time Benguet, San Miguel, PLDT, Atlas, Philex and Ayala) had fallen to only US $340 million and the entire Philippine stock market amounted to less than US $500 million (today, even after the 1997 Crisis, it is around US $25 billion). PLDT was selling for less than US $40 million and at 1.7 times earnings. San Miguel had a market cap of only US$60 million—less than the value of its 75%-owned Hong Kong-listed subsidiary. By its peak over US $4.5 billion. So, if strategists wanted you believe that US stocks are looking cheap, just remember the valuation of Philippine shares in 1985!
Elections hardly played a role in the stock market in 1998. The PSEi was crushed from the Asian crisis even when Erap won by a 23% margin landslide (which was way bigger than the 2010 and 2016 version both at 15+%).
There was hardly any stock market honeymoon for Erap
Because the Phisix collapsed by a terrifying 68.6% in 19 months (!!!) from February 1997 to September 1998, the Phisix had a huge 145% dead cat’s bounce from the said September low to July 1999. [This cherry picked data has been interpreted by some as electoral honeymoon.]
Yet such bounce eventually was totally eviscerated or wiped out by 2001 after Mr. Estrada was ousted!
GMA’s 2004’s rally came about because the PSEi emerged from the 7 year bear market brought about by the Asian crisis (1997-2003).
The rally today, which has been a legacy from PNOY’s landslide triumph in 2010, developed in response to the crash of 2008.
The Great Recession crash, which had little bearing on the economy, proved to be a wonderful opportunity.
Most importantly, such rally has reflected on the BSP’s pivotal monetary easing in 2009 which served as automatic stabilizer against the global financial recession.
In summary, GMA 2004 and PNOY 2010 stock market rallies were grounded on post bear market recovery responses. 1992 FVR’s 1993 rally emerged out of the clearing away of the various factors that suppressed the stock market rally during the Cory regime.
1998 Erap’s magnificent massive landslide win which should have spurred C-O-N-F-I-D-E-N-C-E hardly delivered a honeymoon.
Prevailing stock market sentiment has signified as a dominant force behind each of the post-election rallies. It was why the apprehensions from the Asian crisis had proven to be a key factor that inhibited any rally. A collapse happened first before the rally.
More importantly, hardly any one of the stock market rallies from the post 1986 constitution elections had been rooted on ultra high valuations!
Remember, new administrations are no free lunches.
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