As an old saw goes, what you see depends on where you stand.
Well, perhaps it could be more than just the position, but rather the positional effect of a defined optical activity. In a word, bias.
Bias shapes people’s perception, observation, discernment and eventual actions.
Biases, anchored on the mental “law of least efforts”, are often associated with heuristics or mental shortcuts.
And heuristics are often a product of crowd wisdom.
For instance, the current vertical price actions of several issues at the Philippine Stock Exchange represent symptoms of deeply held convictions that free lunches not only exists but has become an entitlement mostly for the financial industry.
The shibboleth of G-R-O-W-T-H has pillared the free lunch creed.
When the markets move higher, such heuristic goes into motion. When the market falls, the intuitive excuse would then shift to “expensive”.
Neither G-R-O-W-T-H nor expensive explains the causality of price movements. Although through the conditioning of mainstream experts such misperceptions have become embedded on the public.
Charts serve as great examples of how one would apply biases in the analysis.
For the bulls, the Phisix chart would look like a bullish ascending triangle whose resistance levels at 8,100 are presently being tested.
Forget the double top. Forget too of the steep rising wedge formations that have doomed the three previous vertical rallies since 2013.
This time MUST be different.
Aside from the Phisix chart, I offer another perspective: The US listed Philippine ETF, the EPHE. (see lower window)
iShares defined the EPHE or the iShares MSCI Philippines ETF as seeking “to track the investment results of a broad-based index composed of Philippine equities”.
The EPHE is NOT the Phisix.
Unlike the elite 30 of the Phisix, the EPHE represents a constituent of 44 Philippine equities, 25 of which are PSEi components. EPHE includes non PSEi 30 issues such as DNL, BLOOM, MRP, DD, VLL, MWC, CEB, COSCO, CHP, FLI, LPZ, FPH, CNPF, X, NIKL, PLC, RCB and ABSP. It has a cash account BLKFDS which serves as the 44th component. And excluded from the EPHE are PSEi issues MER, SMC, SCC, PGOLD and LTG.
The EPHE is listed on the NYSE and denominated in USD.
The EPHE’s top 5 issues with their attendant share weightings are Ayala Land (9.53%), SMPH (9.25%), BDO (7.5%), JGS (7.13%) and Ayala Corp (6.68%). Strikingly, SM ranked only sixth with 5.91% share.
The top 5 issues account for 40.09% share of the ETF’s basket
On the other hand, the top 5 PSEi issues are SM (11.1%), SMPH (8.49%), ALI (8.42%), BDO (6.39%) and JGS (6.17%). The top 5 issues of the PSEi 30 have a 40.57% share of the index.
From a chart perspective, both the PSEi and the EPHE has shown serial accounts of vertical prices as manifested through the rising wedge formation.
Unlike the PSEi where a new record beckons, the EPHE’s present vertical actions have severely lagged the 2015 and 2016 peers.
Unlike the PSEi’s ascending triangle, EPHE offers an opposite outlook, a bearish descending triangle.
Even more, though the differences in market share weights have also been a factor, diminishing returns appears to have plagued the EPHE mainly from the weakening peso and the inclusion of a relatively broader number of firms.
It would take a combined massive rally in the peso and at least Phisix 8,500 for the EPHE to reach its old high
Just look at how the Phisix 8,000 level was reached last week.
Because SM, SMPH and ALI have a combined 28.02% market weight share, their staggering gains for the week, specifically 3.97%, 3.7% and 1.45% respectively, contributed to about an astronomical 80% share of the week’s 1.04% output!!!
If PLDT and ICTSI would be included, the share of combined contributions rockets vastly above 100%! Losses on the rest diminish their gains.
The Phisix catapulted higher this week, but losses dominated the broader based components: decliners outclassed advancers 16 to 13 with one unchanged!
Considering the explosive price volatility, the average gain by the Phisix was only .31%!!!!
Speaking of price instability, 14 of the 30 issues or 47% had price changes of at least 2%. And price changes of at least 3% were recorded in 6 issues or 20% of the PSEi. Remarkable!
Because of the mechanical pumping on the Sy group of companies, SM + SMPH’s share of the PSEi has rocketed to the highest level at 19.6%. The share of the trio (including BDO) has surged to stunning 25.99% of the PSEi 30. (see upper pane)
In other words, Phisix 8,000 has become acutely, if not entirely dependent on the sustained vertical pumping of top 5 issues, in particular, the Sy-owned group.
The Philippine Stock Exchange updated its Price Earnings Ratio (PER) last week to incorporate 2016 eps.
The average PER of the Phisix as of June 9 was at 20.48, which resonates with the EPHE PER at 20.43 as of June 8.
Yet the market weighted PER for the Phisix rockets to 25.35! That’s because of the clustering of the priciest securities at the top 5 which comprise 54.65% of index PER! (see lower pane)
Because of the prevailing bias, this clearly shows how prices have only become the sole factor for the Philippine Stock Exchange. This is especially true for those manipulating the Phisix higher via synchronized relentless pumping of the top 5 issues (or mostly on the Sy-group)
As it stands, the near record PSEi signifies a mirage, a function of brazen and rampant manipulation and is UNSUSTAINABLE.
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