Stunning! Led by SM, 5-Issues Now Controls 48% of the PhiSYx; The US 4% S&P 500 Market Cap Share

Stunning! Led by SM, 5-Issues Now Controls 48% of the PhiSYx; The US 4% S&P 500 Market Cap Share

Thanks to the First Metro Investment’s ETF, the floating market cap or the official weight distribution of the headline index can be publicly viewed.

The updated distribution numbers are staggering! As of November 22, based on the free-float market cap, SM Investments controls a 15.8% share of the headline index!

In the week ending February 22 or the last date before the Philippine Stock Exchange unpublished this data, that number was only 13.34%. That would signify a big leap!

In the context of the full market cap weight, SM has 13.15% and is the king of listed issues. Full market cap = market price x outstanding shares.

Nevertheless, three of the Sy owned companies have a commanding 31.65% share of the full market cap index, and most importantly, 32.8% of the headline index.

That is to say, the MOST authoritative influence has been the SY group of companies!

In the meantime, based on the headline index, the top 5 companies control a whopping 48.4% of the index that's against the full market cap, where its share is at 44.16%! Sy group PLUS two other issues Ayala Land and Ayala Corp continues to snare a bigger role of the index. Lesser weighted issues become increasingly less relevant.

The irony is that the public refers to the index as the market. Just how valid is this popular notion when only 5 issues comprise nearly half share of the index?

The next question is how did it get here?

Since the genuine boom backed by huge volume climaxed in 2013, the index has increasingly has become dependent on the sustained cosmetic facelifting from unidentified managers after.

 

These mark-the-close actions benefited mostly the Sy group of companies, hence the skewed distribution that has brought about the widening gap in share weights against the rest of the field.

For example, the index closed down by 1.37% this week, but the decline could have been bigger had it not been to the 71.06 points or .9% end session pumps, with again, SM as a prime beneficiary.

 

And with mounting concentration, the increased dependency on SM and the SY group renders the index more susceptible to any adverse development on them.

In the US, the significant benchmark appears to be the 4% share weight of an issue relative to the S&P 500. In the past, when a company goes beyond this watershed number, a top in either the US markets or for that stock has been signaled.

Will the same apply to the Philippines?

And finally, in the Black Swan Theory, iconoclast Nassim Taleb’s offers the Turkey Problem to analogize the risk of ruin.

"A turkey is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys, and every day brings more confidence to the statement. But on day 1,001 there will be a surprise for the turkey..."

That Turkey problem was in action last week. After soaring 3,800%, Hong Kong-listed Artgo Holdings collapsed 98%, after being rejected by the MSCI in the China index, in a single day! 

Past performance does not guarantee future results!

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