A speculator is a man who observes the future, and acts before it occurs—Bernard Baruch
PSYEi 30: Emperador Replaces SCC; An Exclusive Membership Club for the Elites
The PSE says it uses several measures to assess whether to change members of its elite composite index.
Among the PSE requirements are “a float level of at least 15 percent, the ranks among the top 25 percent by median daily value per month in nine out of 12 months and ranks among the highest in market capitalization”.
Semirara was recently booted out in favor of Emperador.
SCC saw the doors because its share prices remain on a free fall. Meanwhile, Emperador has been one of the rare outperforming issue or a bull in a field populated by bears.
BLOOM’s experience, being ejected at the low, and re-enlisted at a high, shows us the real reason for the PSE’s change of the members of the index.
The PSE looks for issue/s that have an upside price momentum going. That’s because such issues tend to boost the index level. Or, the PSE gives most weight to the “ranking of the highest market capitalization”.
The PSEi, formerly the Phisix, represents a fixed basket of thirty (30) common stocks of listed companies, carefully selected to represent the general movement of the stock market, according to the PSE Academy.
Or it is supposed to be an indicator of the general state of the Philippine business climate, according to the Wikipedia.
Sadly, it is neither.
The PSEi can be analogized as an exclusive country club whose members are the elite. The rotating membership consists of holding companies and their subsidiaries.
The PSEi’s membership showcases the economic inequality structurally embedded in the socio-political-economic system.
That said, fetishes of such institutions may have been influencing substantially market pricing and valuations.
Though retail investors have been growing, mainly through the online platform, they comprise a minute 1.13% share of the population in 2019. Plainly stated, stock market trades continue to be dominated by domestic and foreign financial institutions, which are mostly controlled by the elites.
But the latest rally has come about with shrinking participation of foreign trades, which dropped to a 5-year low last week. The PSYEi and the peso have been rallying on thinning trade and significantly reduced foreign participation. Has the BSP imposed implicit capital controls through the community quarantine?
As a side note, yes, the PSE registered foreign buying this week mainly because of the listing of Ayala Land’s AREIT.
The deepening use of marking the close pumps has increasingly impaired the pricing system. This deliberate gaming of the system has skewed immensely the distribution of market cap weightings, as well as the PE ratios.
Based on 2019’s PER, current prices reflect an average PER of 19 for a 20% decrease and an average of 30 PER for a 50% reduction. For the 27 firms that have announced the 1H 2020 PER, the aggregate earnings deflation has been at 56%. And non-financial firms have engaged in heavy borrowing despite the earnings collapse!
Perhaps we can post the detailed breakdown of the 2Q and 1H performance upon the completion of the publication of 17Q reports by PSYEi 30 firms.
Free access to politically imposed cheap credit differentiates the elite from the mom-and-pop entrepreneurs, who are the main victims of the current lockdown policy.
Despite the recent crash, the market has yet to clear imbalances accrued over the years
Looking ahead, it would be a major oversight to expect that the economy could still go back to business-as-usual. COVID-19 is leaving scars that even a proven vaccine may not remove. The old economy has to “re-fit” into the new normal of social distancing. Business paradigms that relied on scale (incurring high fixed costs and catering to the retail market in mass) will have to rethink how they can operate in the post-COVID-19 world. Air transport (planes that cost from USD77 million to USD450 million depending on the model, ferrying hundreds of passengers per trip) and big shopping malls, for example, may not be as viable under reduced floor and foot traffic.
And the “refitting process” of the credit driven race-to-build supply economy will unlikely be smooth such that even firms of the elite will likely suffer.
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