The Halloween Effect: Newton’s Law Haunts the PSE!

The Halloween Effect: Newton’s Law Haunts the PSE!

According to Newton’s Third Law of Motion, “For every action, there is an equal and opposite reaction.”  

Newton’s law defines many activities at the PSE.

Because price spikes have drawn crowds, so has the rationalizations for it.

The predominant template of the rationalizations for third-tier stocks shooting to the moon would be the reported infusions from a large (foreign or local) company or from a consortium of firms as investments. In a phrase, mass delusions.

But here’s the rub, the ongoing liquidity drain in the financial system has unmasked such grand charades.

Below are some wonderful examples.

The trading floor was abuzz about these (when I was there in early 2019)…

 

Zeus Holdings and PAL Holdings

Premiere Horizon Alliance (PHA) captivated the crowd most in early 2019. Its shares traded among the top 20 most active issues in more two weeks and even took the top spot, on at least two occasions.

Now forces of Newton’s law has pulled PHA’s share prices back close to where it originated.

Similar symptoms have also manifested even in PSEi member Megaworld.

Easy money gained. Easy money lost. And its barely a bear market in the headline's context.

Of course, being a member of the composite index, it wouldn’t be farfetched that the campaign to rig the index may involve pushing Megaworld back higher.

 

Tada! This week’s index modest facelift!

Furthermore, not only does such a roundtrip dynamic exhibit the character of distortive rampant speculations in the price actions among the few issues that have risen, but it has also displayed the decadent internals operating in the PhiSYx sphere.

Mini bubbles, anyone?

In my radar screen of 196 non-PSEi issues, less than 15% have shown upside dynamics.

Such asymmetry translates to a brutal bear market in the PSE’s non-index universe (as of October 31).

Needless to say, concealing the real conditions through the manipulation of the index has only been aggravating the equity market’s entropy.

 

And with the index rising on a decaying trend of peso volume output that has resonated with bank liquidity conditions, what should happen once sellers gain momentum?  

Wouldn’t the scarcity of liquidity be similar to a small door in the face of an outbreak of fire in a crowded place?

Wouldn’t this be the late BSP Governor’s Nestor Espenilla’s warning that the domestic stocks could be a “Minsky Moment waiting to happen”? (p.47)

As a side note, because of the doubling of special block sales, peso volume has improved by 15% to Php 1.587 trillion in the 10-months of 2019 from Php 1.38 trillion over the same period in 2018. Bluntly put, the index’s year to date return of 6.85% has brought about only a .33% increase in the peso board volume to Php 1.291 trillion in the 10-months of 2019 from 1.286 trillion in 2018.

Barely have such are facts been in the mainstream's conversation.