A wild celebratory mood has already engulfed the PSE, even when PSEi still trades below the 8,000 level
PSE officials hardly realize that their actions are symptoms of extreme sentiments
PSE’s Jinx: The PSE’s Worship of Asset Bubbles
They initiated their cheering with the “highest level for the year” early June.
At the end of the same month, the PSE ravished at the “ 14.7 percent increase for the PSEi in the first six months of the year”, as well as “Market capitalization of companies listed at the PSE hit a record high of Php16.42 trillion on June 14, 2017. Meantime, property developer SM Prime Holdings, Inc. also reached a record market capitalization of Php1.01 trillion on June 9, 2017. This was the first time a domestic company breached the Php1 trillion market capitalization mark.”
To reflect on the mainstream’s religion, the PSE bears the idea that prices are the only thing that matters.
Since 2009, not only has all 1H performance have been positive, but 2017’s 14.7% ranked only fourth compared to 2009 (+30.17%), 2012 (+20%) and 2014 (+16.21%). So 2017’s performance has just been one of yearly humdrum.
Since the BSP has embraced the “trickle-down” (wealth effect) policies of keeping interest rates at historic lows, then this should be expected. The BSP expanded their toolkit in 2015 to use record monetization of the national government’s debt.
Record market cap mainly reflects on the many new IPOs.
It’s the 2H half performance which should be a challenge. Three of the last four years posted negative outcomes.
From either 2006 or 2009, the 2H’s general trend has likewise been southbound.
So 1H typically has served as a crucial buffer against 2H’s decline. Will this time be different?
While past performance may reverberate, I’m not a rigid believer in patterns. However, given that many factors seem to be converging, it would seem that a repetition or a reinforcement of the present dynamics is likely.
Moreover, one day soon, the Phisix will share the same secular cycle as with its forebears.
PSE’s Jinx: Presidential Visits at the PSE
The Philippine President’s recent visit to the PSE spotlights the third sign of the industry’s euphoria.
Prior to Mr. Duterte, two of the three visits of the Philippine presidents have coincided with bear markets during the last decade.
PGMA made an unannounced appearance at the PSE on October 24, 2007. The PSEi dropped over 50% from then.
PNOY regaled the string of new records at the PSE on March 6, 2012. Yet, the PSEi’s winning streak extended until May 15, 2013 or when the PSEi reached 7,392.2
About two years later, PNOY consecrated the pinnacle of 8,127.48 four days after or on April 14, 2015. The Phisix dropped to bear market levels after.
PNOY’s 2012 magic actually signified the sweet spot of the BSP’s embrace of zero bound rates.
Nevertheless, embracing winners are intuitive to the Homo sapiens species. The herding effect, groupthinkand the survivorship bias are manifestations of such psychological-heuristic dynamics.
And more so with politicians who, to enhance their appeal to the voting public, would have the propensity to grab credit of a winning situation. And euphoria easily attracts politicians.
YET, manias are usually emblematic of market tops. From the perspective of bubbles, once Presidents take the center stage of the PSE, it would signify an ominous sign of a likely inflection point
And given the current conditions, I would wager that a vastly overrated, extremely expensive and massively deformed market would be ripe for, at least, another 7,400 jumping rope dynamic.
PNX’s Winning Recipe: Political Entrepreneurship Backed By BSP’s Easy Money Policies
Here’s more.
This year, 7 listed firms commemorated their respective anniversaries at the Philippine Stock Exchange.
In celebration of their corresponding silver listing anniversary, officers of UnionBank, Cebu Property Development Ventures, and International Container Terminal rang the PSE’s ceremonial bell.
Vista Land, National Reinsurance Corporation and Aboitiz Power which had their 10th year of listing likewise observed the same tradition
But TENTH anniversary of Davao based energy firm, Phoenix Petroleum Philippines was unique. It had a powerhouse guests list led by no less than the Philippine President Duterte and his key cabinet members!
Mr. Dennis Uy, the company’s President and owner, reportedly was one of the major donors to Mr. Duterte’s triumphant campaign for the highest political post last year.
If there should be any message from the event, Mr. Uy projected his closeness to President to the public. Or PNX had the Philippine President as its major benefactor!
Other than having the Philippine President as the guest of the honor, lady luck also has smiled on Mr. Uy as his PNX zoomed by an astronomical 112.4% year-to-date (week on week: +13.28%)!
From a market cap basis (outstanding shares x share price), PNX swelled to Php 16.3 billion (Friday, July 21) from Php 7.96 billion at the start of the year. That would mark an astounding Php 8.32 billion windfall for shareholders. If Mr. Uy, his family, and his associates control 51% of the firm, then the recent price surge would redound to a gigantic Php 4.06 billion largesse!
Phoenix posted earnings growth of 6.67% or Php 1.01 billion in the year 2016 and 21.42% or Php 282.3 million (Php 1.129 billion annualized) in 1Q 2017. The management attributed the 1Q 2017’s stellar improvements mostly to the rebound in global oil prices (26% rise in fuel prices).
So based on the Friday’s close, asset inflation immensely trumped the firm’s annualized operating earnings by about 7 to 1! It is payback time for being an avid political supporter.
Mr. Uy’s fortune is on a roll. The Duterte government’s Philippine Amusement and Gaming Corp. havereportedly awarded the businessman’s consortium a gaming license to operate an integrated casino in Cebu. Perhaps the firm will get listed too. This means more transfers from the public’s savings to Mr. Uy’s businesses. Of course, the BSP’s easy money policies will facilitate for such implicit subsidies.
And to repay for such bounty, Mr. Uy promised the President to establish a Php 100 mutual fund for the benefit of the soldiers and the policemen.
Php 100 million reciprocation for a political economic bonanza of Php 4 +billion, wouldn’t such be considered a tightwad?
As one would note, a big deal of moneyed and politically connected people has been munificently benefiting from the BSP’s trickle down easy money policies, channeled mainly through asset bubbles.
Sauve Qui Peut? High Ranking Private Bank Official Allegedly Attempted to Defraud a Client
Easy money SHORTENS people’s time preference and orientation. Because of greater demand for instant gratification, the temptation is for “sauve qui peut” (save yourself if you can), or the recourse to frauds, swindles, and defalcations that are meant to preserve the benefits of the recent past.
A high ranking private sector bank official, who was earning Php 250,000/month (Php 2.5 million a year), wasreported to have been caught in the alleged attempt to embezzle interests rates payments worth (Php 2.25 million). The payments were to be made by a client from a falsified loan. It must be utter desperation to prompt for a gamble to purloin money that has been less than the earnings of the accused. Most likely, media and the bank have sterilized the case.
Just look at the scheming wild and brazen “marking the close” activities executed almost daily at the PSE. Concealed behind those price fixing actions have surely been gobs of unscrupulous transactions. The shifting of the banking system’s investment portfolio from AFS to HTM could partly be symptoms of accounting chicanery or skeletons in the closet. [See Newly Inaugurated BSP Chief Warns On The End of Global Easy Money July 9, 2017]
Once the economy materially slows, more of these cases are expected to surface. Historian Charles P Kindleberger (Manias, Panics and Crashes) has once warned that such “sauve qui peut” actions signal the climax of Manias.
No comments:
Post a Comment