The Filipino Consumer’s Paradox: Highly Optimistic But Uncannily Frugal! Lessons From China’s Stock Market National Team

The Filipino Consumer’s Paradox: Highly Optimistic But Uncannily Frugal! Lessons From China’s Stock Market National Team

Lessons From China’s Stock Market National Team

The Phisix surged 1.97% to recover three-quarters of last week’s deficit.

How was this done?

 

In 5 trading sessions, the Phisix routinely began its major intraday ascent right after lunch. However, such concerted push lacked a follow thru on Monday and Tuesday.

On Wednesday, price riggers used the major afternoon pump as an opportunity to unload at the closing bell, hence, the fantastic pump and dump!

To ensure that the same dumping dynamic won’t be used, an SM led marking the close pump elevated the Phisix on Thursday.

On Friday, the afternoon routine ended with Bitcoin price dynamics.

The Phisix has even been more manipulated than the China’s stock exchange where the latter’s price rigging represents an “official policy”.

China’s national team (or a consortium of state-owned enterprises) operates in the mid to late afternoon session.  The Shanghai Composite index shows part of how the national team goes to work.

Unfortunately, China’s stock market doesn’t have a facility for “marking the close”.

The national team has been responsible for giving its stock market a lift in 2017 (Shanghai index 6% year to date)

Lately, the Chinese stock market has begun to wither. Now questions have emerged on the National Team’s effectivity in bolstering stocks.

From the Nikkei Asian Review: [Shanghai stock market sags on doubts over China's 'national team', December 7, 2017] (bold added)

Many point the finger at a stricter crackdown on wealth management products  -- high-yield instruments that some banks sell to retail investors to raise money for lending or stock investments. They form part of the Chinese "shadow" banking sector that authorities are now moving to cut down to size. But small and midsize banks could see their finances suffer if they are forced to reduce sales of these products.

That outcome would put downward pressure on the economy, and narrow inflows into Chinese equities. On top of that, China's leadership under a newly empowered President Xi Jinping is focused on maintaining the health of the financial system, even at the risk that the economy slows somewhat. This raises another concern among investors: that stock purchases by state-owned financial institutions will wane.

This "national team" held 4.43 trillion yuan ($669 billion) in shares at the end of September, market estimates show. Its holdingshave been growing, mostly in financial stocks, but investors are losing confidence that this undercurrent of support will continue.

At least price rigging in China has identifiable participants.

Political money mandated to buy stocks means more balance sheet vulnerabilities for China’s state-owned enterprises. Furthermore, printed money to finance such operations ends up fueling other bubbles or misallocations in the real economy. Political expediencies to prop up a fading bubble economy translates to the escalation of accumulation of imbalances.

Remember China’s bear market in 2015?

The Chinese government did not just apply the Xi Jinping Put (or a combination of policy measures, e.g. ban shorts, restriction on sales, etc…) to contain the collapse or to rescue the stock market. The Chinese government created an artificial firewall through a tsunami of credit expansion to prevent from a spillover to the economy from the crash.

Through 3 quarters of 2017, close to USD $4 trillion in credit through the Total Social Finance plus local government have been issued! (upper left window) That is twice the rate of the G-3 central bank’s previous QE!

And as evidence that the Chinese government panicked, a huge fiscal stimulus was launched in the 1Q of 2016. (upper right)

That was about the same time the BSP embarked on the second quarter of the DIRECT subsidies to the National Government.

Basically, the present global risk ON environment represents the consequence of the massive credit spigot opened by the Chinese government PLUS the over $1 trillion of central bank purchases. The latter is what the Bank of America Merrill Lynch (BAML) calls the “liquidity supernova”.

Money isn’t neutral. Injections of new money affect the areas of the economy where such has occurred. For instance, when the Swiss National Bank (SNB) issues money to buy stocks, not only does this buoy stock prices, such actions likewise inject liquidity to sellers of the issues (mostly financial institutions). SNB stock market holdings have soared by a staggering 44% to US $91.523 (as of September) from the end of the year’s total of $63.4 billion!

In the Philippines, unknown identities of complicit groups have been forcing up the Phisix. That is aside from the BSP’s intense infusion of domestic liquidity, mostly through the banking system. (lower window)

And both could be related: credit money has been used to manipulate share prices of the top 5 largest companies. The Phisix breakout last September came amidst a similar breakout by M3 from the highs of 2016. M3’s direction reflects on the PSEi 30!

And has it not been quite oxymoronic to see the PSE supposedly say that they have been promoting “good governance” when they cannot even allow the markets to operate naturally?

When bad habits have been imbued as a virtue, then one can expect an environment of financial Sodom and Gomorrah ensconced underneath many balance sheets of major institutions.

The sustained rigging of the markets is just a symptom of a deeper malaise enveloping a credit dependent system.

The Filipino Consumer’s Paradox: Highly Optimistic But Uncannily Frugal!

Three things about government reports:

-Surveys don’t equate to actions. What people say is different than what they do.

-Surveys could be about propaganda more than about actual sentiment.

-Government produces conflicting reports

 

Proof?

From the Bangko Sentral ng Pilipinas: (bold mine)

Consumer outlook was broadly steady for Q4 2017, with the overall confidence index (CI) decreasing slightly to 9.5 percent from 10.2 percent for Q3 2017. This means that the optimists continued to outnumber the pessimists but the margin for the current quarter was slightly lower relative to a quarter ago. The CI is computed as the percentage of households that answered in the affirmative less the percentage of households that answered in the negative with respect to their views on a given indicator.

Respondents indicated that their continued positive sentiment during the current quarter was on account of additional family income and higher salary, and availability of more jobs leading to an increase in the number of employed family members. However, theirslightly less favorable outlook, which counterbalanced their positive views, was due to concerns on: (a) higher prices of goods and household expenditures, (b) peace and order problems (particularly, extra-judicial killings, drug issues and crisis in Marawi), (c) occurrence of calamities such as typhoon, and (d) poor health and high medical expenses.

For the next quarter (Q1 2018), consumers’ optimism likewise remained steady, as the CI showed a fractional decline to 17.5 percent from 17.8 percent in the previous quarter’s survey. Meanwhile, consumer outlook for the year ahead was less upbeat as the CI declined slightly to 32 percent from 33.7 percent a quarter ago.

The BSP’s consumer survey is supposed to provide a pulse of the consumer’s spending behavior or patterns.

Consumer sentiment and measured consumer spending through the Philippine Statistics Authority’s Household Final Consumption Expenditure (HFCE) have gone in opposing directions.

Consumer sentiment and spending have moved in conjunction only going into the elections.

Since the post elections record highs (2Q 2016) a very confident consumer has become ironically increasingly thrifty! Consumer spending has virtually collapsed. It has been down to 4.5% from the 2Q high of 2016 at 7.5%.

And why has this contradiction been so?

In the past, increasing money supply growth initially buoyed spending. However, when the money supply growth began to affect real economy prices, consumer spending slowed. That should be natural because such is a manifestation of the developing imbalances between spending and production.  This dynamic has been apparent in 2014 and in 2016. Thus, real economy prices have tempered such sanguinity. Economics rules.

And the evolving events in the financial and economic sphere have been phenomenal.

The growth of credit card loans continues to sizzle which surged to a record high of 19.14% in October, based on the BSP's latest data. Growth in credit card loans has topped 15% in 7 straight months. Domestic consumers have resorted to increasing exposures to balance sheet leveraging.

Meanwhile, growth in cash in circulation and transferable deposits (M1) reaccelerated to 17.75%, the second highest monthly growth following August’s 18.15% this year. The BSP’s subsidies to the National Government played a complementary role to the banking system.

Yes, the Philippine economy and financial markets have been floating in an ocean of liquidity!

Yet had money printing binge been the formula for sustainable growth then Venezuela would be the most prosperous today!

Interestingly, payroll loan growth at 11.62% continues to tank. Though many companies have opened to service this segment, overall growth has only tumbled. Have these been indications of the lack of jobs or insufficient income?

Finally, auto loan growth bounced back strongly this October to 32.58% from 24.47% a month ago which correspondingly reflected on the 17.3% jump in unit auto sales

Auto sales have been another curiosity, with the imminent passage of the DoF’s tax reform program, which will significantly increase taxes, demand for autos should have ramped up (temporarily). Perhaps, such frontloaded demand will occur at the end of this year. If not, this would amplify the auto industry’s vulnerability.

I wonder what should happen once credit growth, expressed in money supply, moderates.