PSEi 30 6,700: Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue

 

The ultimate result of shielding men from the effects of folly is to fill the world with fools—Herbert Spencer

In this issue

 

PSEi 30 6,700:  Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue

I. PSEi 30 Bested ASEAN Peers; China’s Government Launches Massive Stock Market Rescue

II. PSEi 30’s Organized and Concentrated Pumps: Muted Volume and Selective Winners

III. Renewed Pumps on PSEi 30 Banks

IV. Concentrated Activities: Centralization of Broker Activities, Lack of Retail Participation

V. Foreign Inflows, Rising Yields of T-Bills, and a Flattening Treasury Curve

 

PSEi 30 6,700:  Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue

 

A slice-and-dice perspective of the Philippine PSEi 30's weekly 2.8% gains before the 2023 GDP announcement.

I. PSEi 30 Bested ASEAN Peers; China’s Government Launches Massive Stock Market Rescue

 

Figure 1

 

In the face of drastically loosening financial conditions, the Philippine PSEi 30 surged by 2.8% to reverse the 2.1% loss from the other week that stole the thunder of its ASEAN peers. 

 

Notably, benchmark stocks of the Asian region were mixed—10 of 19 up with an average of .43%, mainly from the biggest winners. (Figure 1, upper graph).  East Asian and Australasian bellwethers closed higher, while profit-taking pulled most ASEAN and South Asia indices lower.

 

Weekly advances in the national equity indices of Hong Kong (HSI +4.2%) and China (SSEC 2.8%) also led the advancers and buoyed the region's average returns. (Figure 1, lower charts)

 

A seemingly desperate Chinese government announced several substantial measures to stem the $6 trillion stock market rout, including a widening ban on short selling, bigger-than-expected RRR cuts, talks about a $278 billion stock market rescue package, targeted lending, easing of regulatory restrictions on home purchasing, and more coming.

 

However, from a five-year perspective, this week's rally in China and Hong Kong’s stocks emerged from substantial oversold conditions.

 

From our humble perspective, bailouts only kick the proverbial can down the road with nastier consequences.  This band-aid approach barely deals with the issue of malinvestments and instead contributes to the erosion of savings.

II. PSEi 30’s Organized and Concentrated Pumps: Muted Volume and Selective Winners

 

Back home, although the PSEi 30 appears to be testing its resistance level, it's hardly a generalized speculative frenzy.  This week's gains pushed YTD and November 2023 returns to 3.7% and 12.15% (as of January 26th).

 

The outperformance of the principal PSEi 30 seems to be a product of organized, coordinated, and concentrated pumping.

 

Aside from easing conditions, the PSEi 30's sugar high could signify a frontrunning of the pre-announcement of the 4Q and 2023 GDP on January 31st.

Figure 2

 

The PSEi 30 has been rising in the backdrop of declining volume. 

 

This week, the average daily main board volume dropped 17.4% from Php 5.01 billion to Php 4.14 billion.  (Figure 2, topmost chart)

 

Though the average daily gross volume jumped by 11.6% from Php 5.99 billion to Php 6.68 billion, special block sales comprised 38%.  Cross trades have also bolstered the main board volume.

 

The primary winners were the largest market capitalization heavyweights.

 

And though 18 of 30 issues closed higher with one unchanged, five of the top 6 market cap issues delivered an average weekly return of 4.32%.  (Figure 2, middle window)

 

In turn, the top 5 issues (SM, SMPH, BDO, BPI, and ICT) now command a 48.15% share of the PSEi 30.  The top 10 has a 71% share.  Briefly, these elite issues led the path to 6,700.  (Figure 2, lowest graph)

Figure 3

 

As a result, the selective pumps have exacerbated the skewed distribution of market cap weighting. The weight distribution resembles and depicts the Power Law. (Figure 3 topmost graph)

 

SM's 6.32% spiked its market cap share to 14.61%, as well as the Sy Group's 33.35%.  (Figure 3, middle pane)

 

The Sy Group's share of the main board's volume also increased to 24% from 19.8% a week ago.  The Sy Group has been amassing buying interests from institutional entities since December 2023. (Figure 3, lowest pane)

 

III. Renewed Pumps on PSEi 30 Banks

 

The surging share of PSEi 30 banks via outsized weekly returns has also been a factor. 

Figure 4

 

Banks' share of the PSEi has risen to 20.61% (as of January 26th), fast closing in on its record 20.75% last September 2023.  (Figure 4, topmost graph)

 

Up by 5.2%, the financial index outperformed the other sectors. (Figure 4, middle window)

 

Thanks to the BSP's Php 2.2 trillion injections, subsidy on deposit liabilities via historic low rates, and the various relief measures, the trio’s bank (BDO, BPI, and MBT) share of the PSEi 30 surged by 62% from August 2020 through last week. 

 

Notably, the bidding spree was limited to banks of the PSEi 30.  Similar to 4Q 2022 until 2Q 2023, were the buyers the non-bank financials?  The BSP has yet to report on the 3Q conditions of the Other Financial Corporation survey.   

 

Essentially, the October-November trough coincided with the sharp drop in bank loans to the financial sector.   Have banks reopened their lending spigot to their non-bank peers? (Figure 4, lowest chart)

 

IV. Concentrated Activities: Centralization of Broker Activities, Lack of Retail Participation

 

Broker activities also manifest the concentration of trading activities.

 

Figure 5

 

While the average daily share of the top 10 brokers fell from 65.2% to 57.9%, the elite (mainly institutional) brokers remain significant.  (Figure 5, topmost window)

 

These elite firms are responsible for a chunk of cross-trades.

 

The remaining 113 or so brokers compete for the morsels.

 

It is not a surprise that end-session pumps or dumps have become a regular feature.

 

Despite the 12% surge of the PSEi 30 from 4Q 2023, the lack of participation of retail money remains apparent.

 

The average daily traded issues bounced while remaining on a downtrend.  Or the increase in trading coverage comes with low volume. (Figure 5, middle graph)

 

On the other hand, decliners have led advancers for the last three weeks while the average daily trades continue to flounder.  Incredible. (Figure 5, lowest chart; Figure 6, topmost chart)

Figure 6

 

Though there were minor improvements on the retail side, January's trades remained a game for the big boys—who have been trading among themselves.

 

V. Foreign Inflows, Rising Yields of T-Bills, and a Flattening Treasury Curve

 

The index managers got some help from foreigners.

Foreign money reported inflows of Php 793 million and Php 4.31 billion in 2024.  (Figure 6, middle graph)

 

Global financial easing may have prompted some overseas funds—via carry trades—to chase returns here.

 

Ironically, despite the inflows, volume remains lackluster.

 

As a caveat, in a world of globalization, trades by offshore entities or direct and indirect affiliates of listed firms may be counted as foreign money.

 

The PSEi 30s' recent ramp tells a story of stage-managed trading activities (organized, coordinated, selective, and concentrated), which is hardly a sign of a bull market.

 

Rising T-bill yields, amidst a flattening curve, also hardly translate to a sustained Risk-ON scenario.  Instead, it lays the groundwork for negative surprises. (Figure 6, lowest chart)

 

 

 

 

 

How the Philippine Treasuries, the Peso and the Philippine Stock Exchange Performed in 2023

The past is a source of knowledge, and the future is a source of hope. Love of the past implies faith in the future—Stephen Ambrose 

 

How the Philippine Treasuries, the Peso and the Philippine Stock Exchange Performed in 2023 

 

A snapshot of how Philippine assets performed in 2023. 

 

I.  As Inflation Fell, Philippines Bonds Rallied in 2023 

 

The zeitgeist of 2023: The countercyclical slowdown in inflation. 

 

Philippine statistical inflation peaked in February 2018 at 8.6% and has hurtled lower through the yearend.   

 

The Philippines followed global inflation down. 

 

Against this global backdrop, the US dollar fell (2%), and domestic and world fixed-income and equity markets rallied hard.  

 

Figure 1 

As a proxy, yields of ASEAN 10-year bonds were generally down in 2023. (Figure 1, topmost chart) 

 

Despite a significant drop in yields in the 4Q, Philippine T-bills yields rose YoY in 2023 as notes and bonds fell, flattening the Treasury curve. (Figure 1, middle and lower windows) 

 

Aside from the CPI, Treasury markets have indicated a slowdown in the GDP. 

 

II.  The Philippine Peso Rebounded by .7% in 2023

Figure 2 

 

Along with the CPI and lower bond yields, the Philippine peso reversed earlier losses and rebounded.  (Figure 2, topmost graph) 

 

The USD-PHP closed the year down by .7% to cut the two-year streak of losses.  (Figure 2, middle window) 

 

In any case, the returns of the USD-PHP appear tilted to the upside, supported by "twin deficits" and its long-term trend. (Figure 2, lowest chart)   

 

Though the mainstream associates the CPI with the performance of the USD-PHP, its 53-year uptrend has occurred even during the disinflationary era.  

 

Nonetheless, the annualized CPI seems to be forging a rounded bottom, which should support the USD-PHP in 2024. 

 

III.  2023: PSEi 30 Fell by 1.8% on Falling Volume, Continuing Trend of Diminishing Returns  

 

Now to the Philippine Stock Exchange.  

Figure 3  

As noted above, the PSEi 30 staged a furious rally in Q4, mainly from November and December's 4.2% and 3.6%, to settle with a 2.04% gain. (Figure 3, topmost chart) 

 

The thing is, this rally was barely enough to reverse the early-year loss.  The PSEi 30 generated nominal and real (inflation-adjusted) returns of -1.8% and -7.8%, respectively.  (Figure 3, middle and lowest graph)  

Figure 4  

The PSEi 30 has endured diminishing returns since 2009 (or 1993), regardless of the CPI's performance. (Figure 4, topmost window) 

 

The PSEi 30's continuing dismal performance is a function of capital and savings consumption, manifested by the 17.6% decrease in gross peso volume (including special block sales).  (Figure 4, middle graph) 

 

Even with the bulls in charge, the PSEi 30 was one of Asia's laggards in 2023.  

 

13 of 19 bourses were up with an average return of 11.9%.  Pakistan, Laos, and Japan led the winners.  Meanwhile, Thailand, Hong Kong, and China were the top (minority) decliners. (Figure 4, lowest chart) 

IV. Financials led by BDO Cushioned the Bear Market; The January Effect 

Figure 5 

By sector, Financials, which returned with a +5.7%, was the rose among the thorns.   As all other sectoral indices endured deficits, financials, primarily led by BDO (+23.5%), provided a cushion to the PSEi 30. (Figure 5, topmost graph) 

 

By members, one-third of the elite firms defied the bear market forces. Three of them carved record highs in December, in particular, CNPF, ICT, and MER.  But the average change was -3.8%. (Figure 5, middle window) 

 

Finally, though January tends to be favorable for the PSE, via the "January effect," annual returns aren't secured.  January 2023 finished up 3.45% yet closed the year down -1.77%.   January's had positive returns in eight of the last 11 years but had negative annual returns in seven. (Figure 5, lowest chart) 

 

While past performance does not guarantee future results, it could provide a useful roadmap to the future.