PSEi 30: Escalating Volatility, PER Ratio Still at 1996 Highs as Credit Default Swap Rates Surge!

 

You can beat 40 scholars with one fact, but you can’t beat one idiot with 40 facts—Rumi  

 

PSEi 30: Escalating Volatility, PER Ratio Still at 1996 Highs as Credit Default Swap Rates Surge! 

 

Volatility appears to be escalating. And it is being magnified by the vicious pumps and dumps. 

 

And like war, the battle is being waged along borders. In particular, index managers have set 7,000 as their Maginot line. 

 

Here is a terse backstory.  

 

After dropping by 4.15% on Monday, helped by massive pre-closing pumps, the PSEi rallied back to amazingly recover 7,100 before retreating to 7,000 on Friday.  

 

 

Figure 1 

Pre-closing pumps and dumps alone comprised 298 points or 4.1%! But the PSEi 30 closed the week down by only -1.47%. 

 

The week’s rescue centered on the SY group led by SMPH and BDO.  

 

URC, JGS, BPI, and SM helped cushion the week’s decline.  

 

Last Tuesday, SMPH rocketed by a stunning 4.98% from the pre-closing window to the runoff/closing bell!  It was up 1.71% over the week! 

 

 

Figure 2 

 

The free-market cap float of the Sy Group surged to a three-month high of 31.7%. Once again, index managers depended on the Sy group for keeping the 7,000-level threshold alive. 

 

Still, the volatilities of last week prompted a breach in the March 2020 trendline established from the historic liquidity injections by the BSP to keep asset deflation at bay.  The PSEi hit a low of 6,638 before closing at 7,019.92 on Tuesday. 

 

The weekly main board volume spiked by 41.2% to Php 11.78 billion from Php 8.34 billion a week ago. But this may be about implicit cross-trades. A foreign group may have sold about Php 10 billion worth of SM shares to institutional buyers represented by a few brokers at the runoff last Friday.  

 

Figure 3 

 

Nonetheless, unlike the consensus uniformly screaming growth, data from the BSP-PSE barely supports such claims.  The Price Earnings Ratio (PER) remains adrift at the pre-Asian crisis levels of 1996 last February, where the PSEi closed at 7,311.01! 

 

Furthermore, while the YoY eps indeed jumped 11.4%, eps in peso appear to be rolling over. 

To this end, the % performance reflects improvements from a low-base than a robust recovery.  

 

And while massive end-session rotational pumps paved way for the PSEi 30 to hit 7,300, gross turnover foundered by about 20% in February. 

 

The slack in volume told the story of weak market breath, lack of participation, and selective pumps, which are symptoms of an artificially propped-up index. 

 

 

Figure 4 

In our humble perspective, surging bank credit to the financial sector may have financed these activities.  

 

Negative real rates, residual excess liquidity, and the lack of lending might have inspired banks to inflate their earnings by speculating in the PSE. 

 

Finally, while index managers might have passionately defended the 7,000 level of the PSEi 30, domestic Senior 5y Credit Default Swaps (CDS) surged most this week in Asia.  

 

Figure 5 

And this comes as liquidity in the treasury markets continues to emit signs of substantial tightening as the 10y5y spread narrowed to 2020 levels! 

 

We live in interesting times! 

 

Yours in liberty, 

 

The Prudent Investor Newsletters 

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Notice:  This newsletter is intended to apprise readers of the market conditions based on the information available at the time of the items’ writing, whose accuracy and timeliness of the issues concerned are subject to change without prior notice.  The contents of the newsletter are not expressed solicitation to trade and that the positioning on particular issues discussed merely reflect the opinions of the writer.