In this issue
Asian Crisis 2.0 Watch: The Second Semester is Vulnerable To Crashes, The PhiSYx Syndrome
-Philippine Equity Rally Amplifies The PhiSYx Syndrome
-Sustained Tremors in Asian Markets
-Asian Crisis 2.0 Redux
-The Second Semester is Vulnerable To Crashes
Asian Crisis 2.0 Watch: The Second Semester is Vulnerable To Crashes, The PhiSYx Syndrome
Will an oversold bounce morph into a fifth bull market in the PSEi?
Though anything can happen, if the epoch of free money is over that scenario would be a small or remote possibility
First of all, it has not just been in the Philippines, but liquidations have been occurring in Asia.
Secondly, liquidations have not been limited to stocks but on currencies and bonds as well.
Thirdly, the epicenter of a likely financial tremor should be of concern to serious investors.
Asian equity markets continue to hemorrhage.
Philippine Equity Rally Amplifies The PhiSYx Syndrome
But first the Philippines.
After last week’s tremendous drubbing, the Philippine PhiSYx was yanked higher to close in the positive. Yes, that’s right. Since the Sy’s virtually control the market capitalization share distribution of the headline index, the Philippine equity benchmark should be re-baptized as PhiSYx or PSYEi.
Because SMPH flew by 8.12% due mainly to an engineered pump, which sent the index 1.8% higher, the three Sy-owned companies has taken control of the index with a shocking 29.98% share, as of Friday. SMPH contributed more than 30% share of the week’s gain.
And the addition of the three Ayala firms should translate to six firms having an aggregate market cap share of a striking 50.84%! That’s right. The PhisYx is not about 30 firms as popularly assumed but about primarily the Sys and the Ayalas.
So persistent brazen price fixing process has benefited mainly the Sys, which led to their current standings in market cap ranking, and their prestigious Forbes wealth status.
Has any expert ever talked about this?
So the recent bear markets have only consolidated the Sy’s stranglehold of the index.
Be it known that I have no personal beef with the Sys. However, as a disciple of the markets, I am outraged by whosoever has been mangling the pricing system unfettered.
Sustained Tremors in Asian Markets
The Philippines (+1.85%) along with the national bourses of Mongolia (+2.44%) and Pakistan (+.66%) were the week’s outliers for posting positive returns defying the general sentiment.
This week’s risk-OFF mode appears to be a continuation of the general mood of the region’s equity market for the first semester of the year.
Of the 19 listed in Bloomberg, only 5 or 26.32%, have scored positive returns for the period: New Zealand (+6.49%), India (4.76%), Pakistan (+2.95%), Australia (+1.98%) and Taiwan (+1.82%).
Equity bellwethers of the Philippines (-15.95%), China (-13.9%) and Bangladesh (-13.57%) were the main laggards for the period.
The Indonesian central bank has raised rates for the third time this year, last week, yet the rupiah fell by 1.4% this week. Down by 5.35% year to date, the rupiah appears to be fast catching up with the peso
Yes, I am reminded of relative returns. The PhiSYx (+25.11%) trounced the US-php (+.4%) in 2017. That was an enormous margin 24.71% margin in favor of the PhiSYx.
However, at the end of the June 2018, the USD php (+6.83%) almost caught up with PSYi 30 (-15.95%) for a margin of 22.78% in favor of the US php.
And given the gargantuan Php 181.1 billion of QE year to May, which is about half the size of 2016’s Php 341.5 billion, the peso is likely to fall faster when inflation gets a second wind.
Asian Crisis 2.0 Redux
Neither has this been about the Philippine peso nor the Indonesian rupiah, the best performing emerging market currency has weakened against the US dollar.
I mentioned last week that “current events reek of the Asian crisis”, I am not alone now as analysts from the Bank of Americasees an “eerily similar to the prelude to the Asian/LTCM crisis of 1998”.
What seems to be happening has been liquidations which appeared in the peripheries (emerging markets) and has begun to spread into the core (advanced economies)
Figure 2
In contrast to 2013 where the global central banks eased in response to the taper tantrum, the reverse has been happening.
As developed economies have commenced on withdrawing liquidity or have begun tightening financial conditions, these actions have exposed internal fragilities such as inflation and the offshore (Eurodollar) dollar imbalances to send a scramble for US dollars and or abrupt closure of “carry trades” and or a stampede out of the emerging markets by foreign arbitrageurs.
And if this dynamic persists or escalates into a sudden stop, it won’t be long before one or several of the emerging markets crack.
Hong Kong’s interbank rates (HIBOR) have been undergoing incredible liquidity stress which could be the reason why the yuan has been falling anew. Perhaps this may be about Hong Kong banks providing US dollar funding to Chinese banks whichhave turned haywire.
And worst, if Chinese economy implodes, so will the world.
Every crisis has been unique, though. However, if we are going to use the 1997 episode as a template, then the last semester could prove to be very interesting
The Asian crisis surfaced in July, six months after liquidations appeared. I am not forecasting that this would happen in July. It may or it may not. It is immaterial.
Instead, since a lot of stock market crashes around the world has occurred in the windows of August to October, current financial conditions make the last semester of 2018 highly vulnerable to one.
The Second Semester is Vulnerable To Crashes
Figure 3
And in looking for fun in patterns, this year’s 15.95% decline broke a 10-year streak.
Except for 2008, the first semester has been favorable to the Philippine stocks or the Phisix. (It was legitimately a Phisix then) Because of another frail semester, losses in the first semester had been compounded to close the year in a deep red. And that was due to the Great Recession.
Meanwhile, first semester gains of 2013, 2015, and 2016 were either trimmed or reduced to losses by the end of the year due to the pronounced weakness in the second half.
That said, there has no consistent streak underpinning the last half. The common denominator has been the degree of price changes or volatility.
Of course, volatility may have been induced by excessive gains in the 1H or by changes in internal and external dynamics.
For this year, and the 2018 bear market cycle, the backlash from easy money policy and prodigious political spending have surfaced through politicized street inflation, an accelerated declining trend of the peso and spikes in treasury yields.
Unlike the previous bear markets were recovery had been based on the extension of easy money policies, the present strain has been upsetting its very foundations
So for a full recovery to take hold, authorities would have to successfully reinstate a regime of easy money by clearing current obstacles.
Good luck with that!
And no, minimum wages, endo and price controls won’t do that. Instead, these would accelerate the cycle’s death knell
