It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong—George Soros
Was the ICT-Powered PSEi 30 Pump to 6,850 About the BSP’s Rate Cut or was it About Marcos-nomics Stimulus? (Short)
The ABS headline bannered, “PSEI back to 6,800 as investors cheer BSP rate cut.”
Well, the entire Asian equity market seems to have celebrated the rising expectations of rate cuts by the US Federal Reserve. In particular, 15 of the 19 national bourses closed 1.96% higher over the week. (Figure 1, upper chart)
The wonders of financial easing have also been manifested in strong rallies in the region’s bonds (falling yields) and firming currencies. The Thai baht, Indonesian rupiah and the South Korean won were this week’s strongest Asian FX. (Figure 1, lower image)
Essentially, bad economic news is good news for the Overton Window anchored on speculative narratives. From their perspective, “MOAR” credit and leverage drive prosperity, hence the revival of various forms of leveraged speculation, such as the carry trade.
Put differently, Main Street woes accrue to the benefit of the Wall Street class around the world.
Has the Marcos-nomics Liquidity Driven Rally Broken the SONA Cycle?
Back home, while the BSP rate cut(s) has been worshipped by the establishment as the path to economic nirvana, the rallying PSE instead reflects the full rollout of “Marcos-nomics”—including the BSP’s easing—manifested through liquidity growth.
Figure 2
The PSEi 30 rallied by 3% for its second-best weekly showing of the year, mainly due to Friday’s 2.31% spike.
Sharp changes in liquidity conditions have influenced the PSEi 30 in a time-lag. (figure 2, upper graph)
The liquidity-driven PSE may have broken the SONA cycle. (Figure 2)
However, was the PSEi 30’s rally really about rate cuts? The devil is always in the details.
PSEi 6,850: Targeted Heavy Pumps on ICT, ALI and a Select Few
Figure 3
This week’s rally was widespread across the PSEi 30, with 18 stocks rising, 11 declining, and one remaining unchanged. (Figure 3, topmost visual)
However, it was ICTSI’s [PSE: ICT] massive 10.4% weekly surge that contributed significantly to the index’s performance. (Figure 3 middle chart)
ICT's share of the free float-adjusted market cap of the PSEi 30 soared by 7.7% from 10.06% to an all-time high of 10.84%. It is closing in fast on the largest firm, SM, with a free float cap of 14.44%.
Ayala Land's [PSE: ALI] 10.33% gain provided flanking support. Ayala Land's free float market cap also surged by 7.6% from 5.75% to 6.19%.
The substantial rebounds of Jollibee (9.2%) [PSE: JFC] and Meralco (8.53%) [PSE: MER] helped too. Up 19%, Converge [PSE: CNVRG] was this week's best performer. However, from the free float market cap standpoint, their contribution remained negligible. (Figure 3 lowest graph)
Understanding the distribution of price changes in the PSEi 30's market cap provides significant insight into the price dynamics of the index.
For instance, while most people call the PSEi 30 the "market," an index with 5 issues driving it skews this holistic principle. As of August 16, the top 5 issues in the PSEi 30 carry a free float weight of 50%, while the top 10 account for 72.9%.
The fact that a few issues comprise the weightings of the PSEi 30 deforms the index's representation, making its price directional movements vulnerable to manipulation.
As a Global Company, ICT is Sensitive to Fed Actions; Debt Outgrows Income
Why would the investing public panic-bid on ICT shares when its revenues are principally derived from international sources? ICT is more exposed to the Fed's actions than the BSP's.
Figure 4
And why the parabolic price action when ICT’s debt is growing faster than its income? In H1 2024, ICT’s debt grew by USD 630.6 million against a net income expansion of USD 113.87 million, meaning that for every USD increase in net income, it drew USD 4.5 of credit. Consequently, interest payments have also surged. How sustainable is this? (Figure 4, topmost window)
Besides, ICT looks susceptible to adverse global events like a hard landing or a recession, as well as bellicose geopolitical developments.
Rate Cuts Driven Rally? Why the Divergence Between the Real Estate and Financials?
Interestingly, while banks and real estate are supposedly the prime beneficiaries of the BSP’s easing, BDO declined by 1.6%, and the relatively modest increases in Bank of the Philippine Islands [PSE: BPI] by 2.12% and Metrobank [PSE: MBT] by 3.7% led to a reduction in their share of the free float index.
On the other hand, ALI’s 10.33% spike, backed by SM Prime Holdings [PSE: SMPH] with a 3.4% gain, increased their index weight. The result is a divergence in the performance of interest-sensitive industries. (Figure 4, middle chart)
It’s not just the PSEi 30; members of the financial index (ex-PSE) and the property index also exhibit the same skew. Gains were seen in most constituents of the Property index (67%, average +1.47%) compared to the Financial index (42%, average all -.43%, average index -2.6%). (Figure 4, lowest table)
Interestingly, the two PSEi 30 property firms account for 73.7% of the industry’s index, while the three banks comprise 90% of the 8-member Financial index (ex-PSE).
Distortions in Volume: Mounting Concentration Risks
The distortions are even apparent in trading volume. The rising share of ICT and the telcos (PLDT, Globe Telecoms, and Converge) in the mainboard volume has been accelerating, indicating intensifying speculative interest. Their share of the mainboard volume reached 22.25% in the week of August 16th, higher than their 2024 seven-month aggregate of 21.9%. (Figure 5, upper graph)
Interestingly, despite the PSEi 30 at 6,850, weekly volume remained lackluster. That is to say, volume remained concentrated in PSEi 30 firms. The top 20 most active issues accounted for 84% of the main board volume. (Figure 5, lower chart)
Mixed Breadth, Foreign Inflows and More Signs of Concentrated Activities
Figure 6
And while the positive advance-decline prevailed at the PSEi 30 over the week, even with Friday's 134-68 differentials, breadth was barely positive (495-476) in favor of the buyers this week. (Figure 6, upper pane)
And yes, "foreign buying" indeed helped. PHP 1.44 billion of foreign inflows was reported for the week, while foreign participation accounted for 38.8% of the overall main board turnover.
The top 10 brokers also constituted 54.74% of the weekly mainboard volume.
All of this suggests that trades were hardly dispersed but rather concentrated, mainly among institutional brokers (domestic OFCs and foreign).
Or, the positive headlines may have misled the public to believe in whatever increases in the PSEi 30 means relative to the underlying activities.
Which History will Rate cut(s) Rhyme? 2011 or (2016) or the 2018 Episode?
Finally, as previously mentioned, unlike in 2011 and 2016, where rate cuts led the PSEi 30 to soar, 2018 saw the reverse—rate cuts led to a decline in the PSEi 30. Balance sheet conditions (public and private) played an important role in this difference. So far, the PSEi 30 appears to be following the 2016 pattern in its current run. Of course, Marcos-nomics stimulus could be the defining nuance. (Figure 6, lowest chart)
Yet it will be interesting to see how lasting such low-volume parabolic pumps last.
Be careful out there.
No comments:
Post a Comment