At its core, all popularity requires cognitive ease. You and your story must be easy to understand for the audience. What's popular can't and doesn't challenge. It feeds the most people what they want the most of in that moment—Peter Atwater
In this issue:
An Escalating or Climaxing Telecom Bubble?! Globe and Converge Prices Go Vertical!
I. An Escalating or Climaxing Telecom Bubble?
II. Globe’s Parabolic Prices: Price Multiple Explosion Unbacked by Fundamentals
III. GLOBE’s Historical Boom-Bust Cycles: Will History Rhyme?
IV. While Global Stock Market Booms, Dearth of Volume From Bank Liquidity Constraints Limits the PSEi 30’s Upside Move
V. The Paradigm Shift Bubble: Telco Sector as Perceived Beneficiary, This Week’s Pre-Closing Dump-Pump Pattern
An Escalating or Climaxing Telecom Bubble?! Globe and Converge Prices Go Vertical!
I. An Escalating or Climaxing Telecom Bubble?
Figure 1
Italics from the news excerpts are all mine.
From the Philstar (August 27): Many MB readers have noticed that Globe has been on an absolute rampage in recent weeks. GLO started August at P1860/share, and closed yesterday at P2948/share; that’s a 58% gain in just 19 trading days…Lots of people wondering what this is all about, and there are no definitive (or satisfying) answers. Some point to the (relatively old) news that Mynt, the parent company of GCash, is “in no hurry to IPO” and is looking to double its current $2 billion valuations. That makes GLO’s 40% stake worth about $800 million, which is serious money, but people are gawking at GCash’s explosive metrics and wondering whether GLO might be sitting on a potential IPO monster in 2022 or later.
From ABS-CBN (August 26): Share prices of Globe Telecom and PLDT continued to rise sharply on Thursday, with DITO CME Holdings and Converge ICT also outperforming the market. Globe Telecom’s stock was up over 13.4 percent closing at P2,948 per share while PLDT was up 7.7 percent, closing at P1,449 per share. This was a day after Globe’s stock gained 14 percent and PLDT 7.8 percent expectations that these telcos’ fintech units would continue to post very high growth rates. Meanwhile, DITO, which doesn’t have a fintech unit, also rose 9.5 percent, while Converge also climbed 4.4 percent.
From the Inquirer (August 26) The Philippine Stock Exchange Index (PSEi) surged higher on Wednesday as large telecommunications stocks flew, pushing the benchmark measure past the 6,800 mark. … Index heavyweights PLDT Inc. and Globe Telecom jumped 7.8 percent and 14.04 percent, respectively. Both companies had previously announced aggressive network investment plans as demand for fast internet services was on the rise during the COVID-19 pandemic.The companies also lifted the services subsector by 3.51 percent on Wednesday.
Most of the articles explaining the GLO boom look like a classic example of rationalizing the fantastic price actions thru the available bias or the "human tendency to judge an event by the ease with which examples of the event can be retrieved from your memory or constructed anew." (tutor 2)
The attribution of spiraling prices to either encouraging prospects of fintech/mobile banking businesses or network expansion plans demonstrates the media's confusion of analyzing causality.
For them, prices react to new information based on fundamentals. That being the case, the media scrambles for anything that provides a plausible justification for ticker-tape actions. Thus, the reasoning from changes in prices, based on available information.
Behaving like a meme stock in the US, share prices of GLO rocketed by 32.1% over the week and by 10% in the previous week to deliver a phenomenal 45% two-week return, which powered its entire 40.3% returns in 2021! At the snap of the finger, share prices of Globe etched a fresh ALL time high this week!
Believe it or not, despite the PSEi laboring to pierce the 7,000 level, five issues, aside from GLO, carved landmark highs in 2021! The others are ICT, FGEN, ACEN and CNVRG. The latter two are neophyte members.
With telcos grabbing the leadership, the headline index surged 2.31% this week. And piggybacking on the 4.95% gain a week ago, the cumulative two-week returns jumped by 7.04%.
Actually, the escalating mania in telco stocks started with CNVRG.
Despite GLO's recent limelight grab, CNVRG returned 110% in 2021, following the latest two straight record-shattering weeks. Since listing on October 2020, CNVRG has been a one-way street. CNVRG entered the fold of the elite members of the PSEi 30 this month, a testament to its post IPO winning streak.
Last week, the mania spread to the rest of the industry. TEL, DITO, and TBGI surged 17.45%, 10.12%, and 5.2%, respectively.
II. Globe’s Parabolic Prices: Price Multiple Explosion Unbacked by Fundamentals
Figure 2
Fundamentals barely explain the meteoric price surge of GLO. While its income has been rising, its debt has been soaring even more!
Profit margins have surely been improving, but it has not been enough.
GLO's net income performance remains steadily inferior to its marginal growth in outstanding liabilities. Its debt has grown by an average of 45% relative to net income since 2014!
And that's not all. GLO's financing cost has steadily been gnawing on its revenues. From a low of 2.14% in 2014, financing cost as a share of revenues has more than doubled to 4.63% in 1H 2021!
Globe Telecoms has charts of the net income, EBITDA, and service revenues on its website. Move along, nothing to see there.
But the alleged boom to its fintech-mobile banking business will not only take time to ripen but most likely account for the substitution effects of the forced transition to a digital economy at the expense of the brick and mortar model in response to the pandemic. At the end of the day, it is the economic value-added or productivity context that drives growth.
Or as stated in early August:
For telcos, the forced adaptation from brick and mortar business models to remote work and telecommuting during the pandemic boosted their revenues.
However, as a service platform, its growth prospects remain anchored on the economic and financial conditions of households and businesses.
In any event, the sector’s outperformance is temporary and should realign eventually with the growth dynamics of its clients/consumers as socio-economic conditions normalize.
PSEi 30: Surging Prices as Criteria to Membership: ACEN and CNVRG in, EMP and DMC out August 8, 2021
The company may even be in the process of acquiring a new firm or would absorb a strategic partner. But then again, the rate of economic growth and the actions of its competitors would serve to limit its financial performance.
In short, nothing in current, past, and present explains the concurrent explosion of share prices of GLO.
Liquidity-fueled price-multiple expansions don't require traditional 'fundamentals' factors as these are symptoms of "something for nothing" bubbles.
III. GLOBE’s Historical Boom-Bust Cycles: Will History Rhyme?
Figure 3
To be sure, the share prices of GLO have undergone several episodes of extreme volatility since 1985. The milepost was in 1993.
When the Phisix blasted off by 154% in 1993, GLO catapulted sixfold in just 11 months! Of course, the 1993 feat is surmountable only if the current velocity of GLO's price ascent is maintained. IF.
Unfortunately, however, from that peak, GLO gave up all its gains and more in the aftermath of the Asian Crisis.
Two more price spikes occurred in 2007 and 2015. Yet, in both instances, GLO prices roundtripped to where they originated.
And strikingly, the 1993 high of 2,522 was temporarily toppled in 2015. That is, a recovery of the 1993 zenith took 22 years!
It is not unusual to see parabolic behaviors of certain or even many stocks with general market peaks.
For instance, following the acme of 1993, the Phisix endured two minor bear markets. It recovered to exceed the 1993 peak slightly, in early 1997. But this triumph proved to be ephemeral. The index eventually crashed by 68.09% from February 1997 to September 1998, manifesting the havoc from the Asian Crisis.
Fast forward to the next decade.
The Phisix peaked in 2007 and plummeted in 2008 in reaction to the Great Recession, sparked by the unraveling of the US housing bubble.
Supported by policies to thwart deflation, the BSP embarked on QE using the financial industry to spur inflation. Despite the relative decline in volume, the Phisix culminated in 2017 with a record high from extensive end-session pumps.
The unleashing of direct interventions to rescue the banking system spurred a massive rally off the lows of the March 2020 crash. Retail activities perked up at the start of 2021, mimicking foreign markets, which foreshadowed the present conditions.
Globe shares boomed in the backdrop of some of these events.
The catalyst for the recent melt-up of GLO appears to be the entry of CNVRG into the Phisix.
To signal escalating public interest, the trading of GLO shares entered the top 10 most active issues on August 16th and hereafter. GLO became the MOST traded issue from August 24th to the 26th. Incidentally, CNVRG officially entered into the PSEi roster on August 16th.
PLDT and CNVRG joined GLO as the second and third most traded from August 25th to 26th. The peso volume of the three telco giants accounted for about 40% and 39.7% of the main board volume, respectively. Amazing!
How sustainable is this Telco bubble? How far, extensive, and lasting can it reach? These are the likely questions many have in mind.
Nevertheless, given its price history, will history rhyme for GLO (also CNVRG)?
Despite the intensifying volatility, the share price trend of GLO remains up over the long term.
In the assumption that its long-term trend holds, the prudent approach is to position buying at the support levels either at or proximate to the 1997 or 2011 trend line.
But I would be skeptical of the durability of the 2011 trendline.
IV. While Global Stock Market Booms, Dearth of Volume From Bank Liquidity Constraints Limits the PSEi 30’s Upside Move
Led by US and European economies, global stock markets are on a tear.
It appears that since the PSE has missed the train, the domestic financial industry has drooled over, to possibly scheme, how to jumpstart a bull market to join this bandwagon.
Yet, the ramp of November 2020 to January 2021 provided a snapshot of the liquidity-driven, relatively heavy volume broad-based stock market.
The industry barely realizes that the crucial driver of the local stock market is bank liquidity, as evidenced by the synchronous fluxes of volume and index levels. As long as bank liquidity remains constrained, the trading volume will remain insufficient to bolster a broad-based advance. That is unless foreign money takes up this void.
Unlike its portrayal in the media, the liquidity policies of the BSP and fiscal policies of the local treasury don’t have neutral effects.
Liquidity injections by the BSP principally benefit the banking industry, as well as the National Government, at the expense of the others.
On the other hand, fiscal policies offset part of these liquidity-generating activities while diverting savings and resources to the public sector.
For instance, because higher expenditure growth has powered the 7-month deficit to a record Php 837.2 billion. Curiously, while the economy slumped to a recession, the 7-month nominal fiscal revenue and BIR intakes were just 3.6% and 3.54% off the record highs of 2019. From the perspective of the public revenues, where is the recession?
Interestingly, the government raised a record Php 2.055 trillion from the capital markets partly to finance this deficit, roll over existing debt, and provide liquidity to the banking system.
In the meantime, cash holding of the public sector rose to a record Php 784 billion as a result of this borrowing spree.
So the Philippine Treasury and banks are awash in cash, while illiquidity plagues the rest of the economy.
Authorities project that the outstanding debt of the public sector to increase by about 20% to Php 13.4 trillion, by the end of 2022, from Php 11.166 trillion this June.
And so, not only are taxes about to be raised substantially after the elections, but the expanded use of the inflation tax will likely be another channel used to subsidize these.
Also, despite the BSP pulling back some of its direct QE with the National Government, the growth rate of BSP cash issuance almost doubled in July to 8.9% from 4.4% a month ago, which may be due to an uptick in bank lending.
As a side note, should bank lending improve, expect a resurgence in street inflation. An artificial increase in demand on some sectors in the face of supply gridlocks and shortages represents an insidious cocktail mix for inflation.
Prices of several issues, mainly index-related ones, on the stock market may have benefited from this excess liquidity from financial institutions and public sector agencies.
V. The Paradigm Shift Bubble: Telco Sector as Perceived Beneficiary, This Week’s Pre-Closing Dump-Pump Pattern
So why CNVR, GLO, or the TELCO sector?
Figure 4
Fintech-based mobile payment facility. Mobile Banking. Digital Economy. This sector provides the most fitting narrative, the zeitgeist of the critical de facto paradigm shift, from the forced transformation from brick and mortar model to the remote-based digital platform transaction model.
And more, perhaps, coming to realize that the current construct of index poses heightened market risks from concentration, index managers maybe engineering a redistribution of market share weightings to a broader spectrum of the elite membership.
Pumping telecoms shares could be part of this design. The market cap of telecom shares, including the CNVRG, jumped to a record as the SY group of companies fell to 2020 lows (as of August 27th)
Finally, as stated last week, there appears to be a dump-pump pattern, which seemed to have held this week.
Significant pre-closing dumps preceded a series of frenzied price-bidding seemingly designed to power the markets up. It happened again.
While the other Friday’s dump was followed by another pre-closing selloff last Monday, Tuesday and Wednesday’s panic buying, which closed with spectacular pre-closing pumps, set the tone for the week. The index was up 2.31%.
And as noted above, instrumental in lifting the index were the telcos. Of course, the week closed anew with another pre-closing dump.
However, the intensity of dumps appears to be diminishing, so will the serial pumps ebb too?
Interestingly, while the index reported significant gains this week, sellers ruled the broader market slightly. Meanwhile, the average weekly board volume improved 21% to Php 6.34 billion.
Some boom.
