PSEi 30 Posted its Largest Weekly Plunge of 3.53% in 2024: Why the Incredible Silence on the Influence of the June 17th Ayungin Shoal Incident?

Journalists cannot serve two masters. To the extent that they take on the task of suppressing information or biting their tongue for the sake of some political agenda, they are betraying the trust of the public and corrupting their own profession—Thomas Sowell

PSEi 30 Posted its Largest Weekly Plunge of 3.53% in 2024: Why the Incredible Silence on the Influence of the June 17th Ayungin Shoal Incident?

Why has the June 17th Ayungin Shoal Incident been absent from all media narratives on the stock market? Is censorship making a comeback?

Here is a list of news articles carrying Friday’s selloff at the Philippine Stock Exchange:

Inquirer.net, June 22, 2024: A weaker peso and strong foreign selling pushed the local bourse over its steepest drop of the year so far on Friday, with the benchmark index touching the 6,100 level for the first time in seven months. The Philippine Stock Exchange Index (PSEi) entered an eight-session losing streak on the last trading day of the week, falling by 2.93 percent, or 186.08 points, to close at 6,158.48…Philstocks Financial Inc. research analyst Claire Alviar noted that the market’s negative performance was due to strong net foreign selling, recording a net outflow of P1.34 billion…The local bourse has been falling in recent weeks, mostly due to the Bangko Sentral ng Pilipinas hinting at fewer interest rate cuts this year, which would mirror the move of the US Federal Reserve.

Philstar.net, June 22, 204: The stock market plunged to its lowest level this year as the peso fell to nearly 20-month low against the dollar. The benchmark Philippine Stock Exchange index (PSEi) lost for the eighth consecutive session, plummeting by 2.93 percent or 186.08 points to end at 6,158.48. This was the PSEi’s lowest level in over seven months or since hitting 6,110.88 in Nov. 15, 2023.

Manila Times, June 22, 2024: THE peso and the stock market ended the week on a sour note with both hitting multi-month lows amid a continued lack of positive catalysts. Analysts said that both the currency and financial markets had taken their cues from each other and that sentiment also remained negative amid continued dollar strength and a tech sell-off on Wall Street.

PNA, June 21, 2024: The local stock market ended the last trading day of the week in the negative territory due to net foreign selling, while the peso closed almost flat. The Philippine Stock Exchange index (PSEi) dropped 186.08 points to 6,158.48, while the broader All Shares also fell 65.11 points to 3,375.20. "The local bourse dropped by 186.08 points (2.93%) to 6,158.48 due to strong net foreign selling, recording a net outflow of P1.34 billion. The market’s new level is its lowest this year and marks its 8th straight day of decline. Additionally, the weakness of the peso against the US dollar continued to weigh on sentiment," Philstock Financials, Inc. research associate Claire Alviar said.

The three wise monkeys: "see no evil, hear no evil, speak no evil"

Isn’t it surprising that there’s NO mention of the escalating West Philippine Sea conflict in media coverage of stocks and the peso? 

Does the rising risk of a full-blown conflict hold any implications for the local financial markets?

Could the chaos — including the death, injury, disability, and destruction of private and public property — even lead to a stock market rally?

It’s incredible to observe that after the media passionately highlighted the knife-toting, boat-ramming, and boat-boarding incident by the Chinese Coast Guard at Ayungin Shoal on June 17, Philippine authorities backpedaled from calling it an "armed attack" that could have triggered the Mutual Defense Treaty (MDT) with the US government, potentially escalating into World War 3.

And yet, the astonishing code of silence by the establishment on its economic and financial impact!

However, foreign investors seem to have taken a different page from local media.

Down by 3.53%, the PSEi 30 suffered its largest weekly decline in 2024, with 83% of this week's deficit attributed to Friday's 2.93% plunge.

Figure 1

This selloff was aggravated by a substantial 1.26% pre-closing dump. (figure 1, topmost pane) 

Friday's meltdown saw a significant outflow of foreign funds, with net selling reaching Php 1.34 billion that represented 48.83% of the week's total outflows. (Figure 1, middle graph)

Foreign money has been selling the PSE in the last 12 of the 13 weeks.

Figure 2

Yet this week's selloff affected most of the 10 largest heavyweights, with the top 5 market caps continuing to decline. (Figure 1, lowest graph) (Figure 2, upper window) 

Could this be the law of mean reversion in motion?

The selloff can hardly be attributed to global developments, as the PSEi 30 suffered the largest weekly deficit among Asian-Pacific stocks. (Figure 2, lower diagram)

Could the weak peso be the culprit?

As earlier noted, the peso's frailty is a long-term trend. Why should concerns over a USDPHP breakout suddenly become an immediate threat to foreign investors?

Moreover, why would foreign funds rush for the exit when the region was experiencing a "fear of missing out" (FOMO) mood?   Eleven of the 19 national indices closed higher, with an average return of 0.44%, while four national benchmarks hit fresh record highs.

In addition to imbalances from market concentration plaguing the PSEi 30, sluggish local volume exacerbated its downside volatility due to panic selling.

Figure 3

Despite a significant boost from cross trades by institutional brokers, the five-month trading volume hit a four-year low, further reinforcing its long-term downtrend. (Figure 3, upper graph)

Once again, dwindling trading volumes increase the risk of a market crash.

Though oversold from Friday’s plunge, which could see a bounce this week, the latest breakdown of the PSEi 30 makes it vulnerable to testing recent lows (5,960 October 27, 2023 and 5,740 September 30, 2022). (Figure 3, lowest chart)

Lastly, media narratives typically focus on either post hoc or availability bias when attributing recently concluded events, but why the blackout on the June 17th Ayungin Shoal incident?

Bottom line: Are authorities assuming that shielding the public from the escalating risk of war will somehow keep the economy and financial markets afloat?

Is censorship making a comeback?