The Philippine government announced a 6.6% 4Q GDP which contributed to last year’s or 2017’s annual GDP of 6.7%.
These statistical growth numbers matched estimates of analysts, according to Bloomberg.
The intuitive populist approach is to link the performance of financial markets to “economic events”.
For instance, since the Phisix (actually the Sy Group Index) closed the day up .54% to a new record: 8,999.02, this would be attributable to GDP expectations.
Well, not to belabor the point, returns of the headline index has vastly outclassed net income growth of its composite companies operating under these so-called GDP numbers.
Or in reality, economic and financial statistics have little relevance to actions of the Phisix.
For simplicity’s sake, whatever levels that the Phisix has reached so far, has hardly been a function of market forces. Instead, like last Friday’s and today’s action, the Phisix is being “forced up” or deliberately being engineered to reach certain levels.
Today’s 8,999.02 should be a great example. The last second prior to the market intervention phase, where all the magic has been contrived, the Phisix was down by a measly .1%. When the runoff period emerged, the Phisix jumped 57 points or was pumped by a stunning 0.64% to close up by .54%!
Guess which issues did the job? Well, SM was unchanged at the regular market session, but boomed by 2.34% at the close! SM had been accompanied by end session pumps in AEV (+.8%), SMPH (+.4%) and ICT (+.5%).
Again SM carried the weight of the index PUMP!
You see, stock market records have hardly been a function of natural market forces but from the constant tweaking and the brazen maneuvering of index sensitive issues.
Like the prevailing political environment, the end justifies the means.
Of course, such price fixing phenomenon has been nothing new. Nevertheless, these developments should serve as a reminder of how we got here.
And more importantly, the ramifications of the sustained abuse of the system will eventually surface. The only way to establish the permanence of this operating framework would be the banishment of the fundamental laws of economics, the business and stock market cycles.
And interestingly, as stocks have been seen and portrayed as one-directional trade, ROP bonds have been selling off!
The biggest magnitude of the selloffs has been in the long end, the 10-, 20- and 25-year yields. As of today, the 10-year was at 6.015%, 20-year 6.175% and 25-year 6.231%. These yield levels were last seen in 2012. However, then, yields were coming down. Today, yields have been rising. The bond markets, which appear to be pricing in higher inflation, continue to pressure the BSP to raise rates.
A dearth of liquidity plagues the ROP markets. And since domestic private and public financial institutions, government agencies and the BSP are the major holders or players, the yield curve is “managed”, like the PSEi 30.
ADB’s favorite yield curve indicator, the 10-year minus 2-year, has suddenly sharply steepened from November through today (upper window).
Additionally, the rise in the long end appears as being “managed”. I suspect that the BSP has tolerated this since it can hardly contain the long end. What it has done instead is to administer the pace of ascent. And to offset this, the BSP may have been concentrating its efforts to widen the curve by controlling the shorter end.
The abrupt spike in the yield curve appears to be a repetition of 4Q-2015 to 1H 2016. To recall, this was the period where the BSP launched the stealth stimulus: the monetization of the National Government’s debts. (lower window)
And it has been no coincidence that the USD peso has been strengthening. Perhaps, the BSP may have re-engaged in using its magical wand. It may have done so by providing subsidy to banks by offsetting higher rates with bigger interest margins, as well as, by painting an impression of G-R-O-W-T-H
The peso fell .52% today to 51.15. Interestingly, the USD peso strength comes amidst firming Asian currencies.
So two critical risks stare on the face of the domestic economy: a miscalculation of HB 10963 TRAIN’s impact and an imbalanced economy increasingly hooked to debt (bubble economy).
Although of course, HB 10963 is an offspring of the latter. The Philippine economy is believed to have been pillared by consumption. So now the NG wants to partake of the alleged bonanza for its boondoggles. And for them, taxing consumption to transfer increasingly amount of resources toward politically directed economic activities would have little consequence to the economy.
Everybody, except for the bond and USD peso market, seems to hope and think that the NG cannot err.
Finally, Philippine yields have outpaced rising yields in developed economies. For instance, the spread of Philippine and US 10-year yields used to converged, now it has been diverging. Embedded in the widening spread is the perception of risk.
Curiously, the Fitch upgrade in December and the US $ 2 billion in bonds sold by the NG to foreign investors a few days back has done little to improve the ROP and USD market.
A lagging effect perhaps?
Today, a remarkable dissonance had been conveyed by Philippine financial markets. Record Sy index, 2012 high yields and near 10-year high USD-php, which of them would eventually be proven right?
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