Extreme Euphoria: Global Stock Market on a Moonshot as Retail Participants Rule the PSE!

 

While the price may be a bubble, the behavior is a craze. The distinction is important—Peter Atwater 

 

 

Extreme Euphoria: Global Stock Market on a Moonshot as Retail Participants Rule the PSE! 

 

Asia’s equity markets appear to be afflicted by a bipolar disorder, plunging a week ago but zooming higher this week.  

 

In the meantime, global markets, which spiraled significantly higher, likewise reached unprecedented valuations last week.  Global market capitalization to GDP, or the Buffett Indicator, hit an all-time high of 122.4%! 

 

One can watch in awe how markets have been transformed by the global central bank’s unprecedented liquidity infusions. Market sentiment in the US has reached monumental euphoric levels topping the halcyon days of the dotcom bubble.  

 

Weekly equity inflows to the technology sector hit the largest on record. In the meantime, institutional investors in the US are now fully invested as US margin debt passed the dot-com level to etch a fresh high. 

 

Amazing.  

 

The supposed duel between Wall Street and retail participants climaxed with the incredible collapse of GameStock shares. The Visual Capitalist explains the retail-driven Reddit revolution stock market mania. 

 

Korean retail participants likewise frenetically piled into foreign stocks, the first in history. 

 

Back at home, ironically, the PSEi 30 gained in % terms, what it lost the other week.  This week’s 6.15% weekly advance offset the 6.15% fall a week ago. But in nominal terms, the index has yet to cover the 26.65 points deficit from the losses of the other week. 

 

Yet stunningly, 56% of the week’s gains came from the pre-runoff 'marking-the-close' pumps! A stupefying 5.63% pre-runoff to the closing bell pump on SMPH last February 1st could be one of the largest. Considering the frequency and history of closing pumps, those are barely from retail trades. 

 

Earlier I wrote… 

 

And naturally, as people see the purchasing power of their currency shrink, the enticement to gamble away their savings to wangle marginal gains in the face of reduced economic opportunities have become strong.  Why invest in the economy in an environment filled with uncertainties when a few fluctuations can provide juicy returns?   

 

From the Inquirer (February 1): The lockdowns forced by the COVID-19 pandemic have created an army of cash-rich individual investors aggressively chasing yields in the local stock market. The Philippine Stock Exchange (PSE) reported that as of Jan. 22, the retail or individual segment accounted for 52.2 percent of value turnover at the local stock market, while institutional investors accounted for the remaining 47.8 percent of trades. 

 

That is the local version of euphoria in action! 

 

Aggressive retail trades corroborate PSE data showing many second and third-tier issues among the 20 most traded, aside from the vertical price trends, the record daily trades, the record issues traded, falling foreign participation, and historic breadth backed by a sharp jump in volume. 

 

Unlike the foreign flash mobs (many are teens!), the active local retail accounts consist mainly of cash-rich individuals, which according to the PSE’s 2019 stock market profile report, comprise about 21.5% of the 1,038,206 retail participants (net of institutions). Retail accounts have reportedly swelled during the pandemic!  

 

Thanks to the BSP and their global kin, the stock market has become the casino of the rich! 

 

Nonetheless, not only has price volatility been magnified by the bold actions of cash-rich speculators, they have bid up prices way beyond fundamentals. This Businessworld/Bloomberg article zeroes-in on a mining firm, Abra Mining [PSE: AR], with no revenue transformed into a top traded issue.  Instead of an isolated anomaly, unfortunately, manifested a symptom of the overall conditions.  

 

As an aside.  In contrast to the report, Abra Mining reached the 10th and 13th spot on February 2nd and 4th but missed the top 20 in the other three sessions of the week. That said, AR was not the most traded. This author has no holdings of AR as of this writing. 

 

Market cycles evolve as a time-consuming process.  

 

Yet, none of the consensus experts foresee any economic impact when such cycles turn.  

 

Be careful out there.