Unveiling the Reality Behind the Philippine PSEi 30’s 7,000: Market Concentration, Divergence, Manipulations, and the Overton Window

What's been lost in this frenzied competition for eyeballs and "likes" is the distinction between opinion and journalism. The post-truth cliche is that there is no distinction, that everything is mere opinion and spin, but this is not true: journalism is different from opinion and spin—Charles Hugh Smith 

In this issue

Unveiling the Reality Behind the Philippine PSEi 30’s 7,000: Market Concentration, Divergence, Manipulations, and the Overton Window

I. The PSEi 30 Closes Above 7,000: Is This a "Historic Moment?"

II. Foreign Inflows Targeted at Biggest Market Cap Issues, Historically Chasing Tops

III. PSEi 30 7,000: Primarily an ICTSI Show; Diverging PSEi 30 and Market Breadth

IV. PSEi 30 Rose to 7,000 on Depressed and Concentrated Volume

V. Why Ignore the Impact of the Flagrant Manipulations of the PSEi 30?

VI. The Unannounced "Historic Moments" 

Unveiling the Reality Behind the Philippine PSEi 30’s 7,000: Market Concentration, Divergence, Manipulations, and the Overton Window 

I. The PSEi 30 Closes Above 7,000: Is This a "Historic Moment?" 

Along with the region's sanguine performance, the Philippine PSEi 30 broke past 7,000. Could this signify the start of a bull market, as the media and consensus have suggested?

Figure 1

Businessworld, September 13: The PSEi achieved a significant milestone, closing above 7,000 for the first time in over 19 months. Strong foreign buying and expectations of a US Federal Reserve rate cut contributed to this historic moment. (Figure 1, upper picture) 

Historic. Moment. 

Sure, the PSEi 30 has traded above 7,000 for the last five days and closed above this threshold in the last two. However, how is reaching a 19-month high equivalent to a "historic moment?" 

Media is said to reflect the prevailing mood or express the public’s level of confidence. That’s according to the practitioners of ‘Socionomics.’ 

Could this headline be indicative of the market’s mood? 

Let’s examine public sentiment by analyzing the market internals. 

II. Foreign Inflows Targeted at Biggest Market Cap Issues, Historically Chasing Tops 

Foreign buying was certainly a factor. 

This week, aggregate net foreign inflows amounted to Php 2.7 billion, marking the fifth consecutive week of net buying and the second-largest inflow during this period. (Figure 1, lower diagram) 

However, foreign inflows accounted for only 41.44% of the average weekly turnover, the lowest in five weeks. 

This suggests that local investors have begun to dominate the transactions on the Philippine Stock Exchange (PSE). 

Additionally, the scale of weekly foreign investment was far from record-breaking.

As a side note, in today’s digitally connected, "globalization-financialization" world, foreign inflows could also include funds from offshore subsidiaries or affiliates of local firms.

Figure 2

Sure, expectations of the US Federal Reserve's interest rate cuts have not only fueled a strong rebound in ASEAN currencies but have also energized speculative melt-up dynamics in the region's equity markets, driven by foreign players. 

ASEAN currencies outperformed the global market from July 10 (following the US CPI release) through September 11. (Figure 2, topmost table) 

Yahoo Finance/Bloomberg, September 12: Southeast Asian equities have cemented their position as a favorite play of money managers positioning for the Federal Reserve’s policy pivot. Four of the five best-performing Asian equity benchmarks this month are from the region, with Thailand leading the pack. The buying frenzy has put foreign inflows on track for a fifth consecutive week while the MSCI Asean Index is now trading near its highest level since April 2022. [bold added] (Figure 2, lowest chart) 

Moreover, the yield-chasing phenomenon has spilled over into the worst-performing equities, or the laggards of the region. 

Yahoo Finance/Bloomberg, September 12: After being sidelined by investors for much of this year, some smaller equity markets are suddenly winning favor. The trend is particularly evident in Asia, where Thailand, Singapore and New Zealand rank as the top performers in September. Their benchmarks have risen at least 3% each so far, even as MSCI Inc.’s gauge of global stocks has fallen about 1% following a four-month winning streak. Investor focus seems to be shifting as the world’s biggest equity markets such as the US, Japan and India take a breather, and China’s slump deepens. For many of the smaller Asian markets, a limited exposure to the artificial intelligence theme means their valuations aren’t expensive, making them attractive just as the Federal Reserve’s dovish pivot helps boost their currencies and allows some central banks to embark on rate cuts. [bold added] 

The "core to the periphery" phase indicates that investors have been pursuing yields in less developed and less liquid markets, which are inherently more volatile and considered higher risk. This shift could signify a late-cycle transition. 

So yes, while there may be a semblance of increased confidence due to foreign participation, this dynamic appears to be limited to the most liquid and largest market capitalization issues—those capable of absorbing significant trading volumes.

And that’s exactly the case. Except for last week’s drop to 81%, the percentage share of the 20 most traded issues relative to the main board volume has risen in tandem with the PSEi 30 since mid-June. (Figure 2, lowest image)

That is to say, the PSEi 30’s performance was largely driven by concentrated trading volume in a select group of elite stocks.

Figure 3

Using the BSP’s portfolio flow data, July’s portfolio flows represented the largest since April 2022. (Figure 3, topmost image)

However, the larger point is that foreign money flows tend to chase the peaks of the PSEi 30.

In fact, foreign investments often surged during the culminating (exhaustion) phase of the PSEi 30’s upward momentum, a pattern observed since 2013.

Will this time be different?

It’s important to note that the BSP’s portfolio flows include foreign transactions in the fixed-income markets, but the size of these flows is relatively insignificant.

In a nutshell, the purported confidence brought about by foreign participation has been largely limited to the PSEi 30. 

III. PSEi 30 7,000: Primarily an ICTSI Show; Diverging PSEi 30 and Market Breadth

Does media sentiment resonate with the PSE’s market breadth?

In a word, hardly.

The PSEi 30 rose by 1.25%, marking its second consecutive weekly advance and its ninth increase in 12 weeks since this upside cycle began in the week ending June 28th.

This week’s rebound pushed its year-to-date returns to 8.88%.

While we have seen some substantial returns due to heightened volatility in some of the PSEi 30's underperformers, such as Converge (+10.5%), Aboitiz (+8.4%), and Bloomberry (+8.3%), it was the performance of the two largest market capitalization stocks, SM (+3.47%) and ICT (+2.75%), that drove this week’s free-float gains. (Figure 3, middle pane)

The PSEi 30’s average return was 1.03%. The difference between this figure and the index reflects distortions caused by free-float weighting.

Yet, the increasing volatility in the share prices of several PSEi 30 and non-PSEi 30 firms suggests the formation of miniature bubbles.

With a 17-13 score, decliners outnumbered gainers in the PSEi 30, indicating a divergence between market breadth and the headline index.

Despite reaching the “historic moment” of the PSEi at 7,000, market breadth continues to weaken. (Figure 3 lowest chart)

Declining issues have outpaced advancing issues for the second consecutive week, with the 69-point margin nearly double last week’s 37. Declining issues led the market in all five trading sessions.

Figure 4

Yet, the market capitalization weighting of the top five issues rose from last week’s 51.15% to 51.34%, primarily due to ICT’s increase from 10.83% to 10.99%. (Figure 4, topmost chart)

Or, 5 issues command over half the PSEi 30 price level!

This week’s pumping of the PSEi 30 pushed ICT’s share price to a record high of Php 418.6 on Thursday, September 12th. (Figure 4, middle graphs)

To put it another way, ICTSI has shouldered most of the burden in pushing the PSEi 30 to 7,000.

Additionally, ICTSI's rise has been supported by rotational bids of the largest banks, SM, SMPH, and ALI (the six largest), which is publicly shaped by media and the establishment narratives through the promotion of BSP and US FED easing as beneficial to stocks and the economy.

The public has been largely unaware of the buildup of risks associated with pumping the PSEi 30, driven by a significant concentration in trading activities and market internals

The market breadth exhibits that since only a few or a select number of issues have benefited from this liquidity-driven shindig, the invested public has likely been confused by the dismal returns of their portfolios and the cheerleading of media and the establishment.

IV. PSEi 30 Rose to 7,000 on Depressed and Concentrated Volume 

Does the market’s volume corroborate the media’s exaltation of the PSEi reaching 7,000?

Succinctly, no.

To be sure, main board volume surged by 22%, increasing from an average of Php 4.9 billion to this week’s Php 5.9 billion. (Figure 4, lowest image)

However, main board volume remains substantially lower than the levels observed when the PSEi 30 previously reached the 7,000-mark.

Figure 5

Moreover, despite a 4.2% monthly surge in August that pushed year-to-date returns (January to August) to 6.94%, the eight-month gross volume fell to its lowest level since at least 2012. (Figure 5, topmost visual)

That’s in addition to the disproportionate share weight of over 80% carried by the top 20 issues on the main board volume, as noted above.

Incredible, right?

But there’s more. 

The main board volume consists of:

-Client-order transactions

-Dealer trades (usually day trades)

-Cross-trades (trades from clients in the same broker)

-Done-through (intrabroker/broker subcontract) trades 

Last week, the top 10 brokers controlled 53.84% of the main board volume, averaging 56.75% since the end of June.

Or, concentration in trading activities has also been reflected in the concentration of broker trades.

The point is, what you see isn’t always what you get.

Main board (and gross) volume doesn’t necessarily reflect broader public participation.

The sharp decline in direct participation by the public in 2023 underscores this reality. The PSE’s active accounts comprised only 17.6% of the 1.9 million total accounts in 2023—the lowest ever. (Figure 5, middle image)

Instead, trades within the financial industry have played a significant role in the PSE’s overall turnover.

For instance, in Q1 2024, the BSP noted that claims of Other Financial Corporation (OFC) on the other sectors "grew as its investments in equity shares issued by other nonfinancial corporations," and also “claims on the depository corporations rose amid the increase in its deposits with the banks and holdings of bank-issued equity shares”

Have OFCs been a part of the national team? OFCs include bank subsidiaries, public and private insurance and pension firms, investment houses, et.al. (BSP, 2014)

Why would the PSE’s volume endure a sustained decline if there has been significant savings to support the alleged increase in public confidence?

Historic? Hyperbole. 

V. Why Ignore the Impact of the Flagrant Manipulations of the PSEi 30? 

Finally, why would everyone discount, dismiss, or ignore the brazen "pumps-and-dumps" and "pre-closing price level fixing" at the PSE?

In the last five days, managing the index level involved early ICTSI-fueled pumps, aided by frenetic rotational bids on the other top five to six market caps. (Figure 5, lowest images)

After surpassing 7,000-level intraday, the local version of the "national team" dumped their holdings—using the 5-minute pre-closing float—onto unwitting foreign and retail buyers.

Despite this, the PSEi 30 managed to close above the 7,000 level during the last two days—albeit on low volume, with negative market breadth and concentrated trading activities.

Still, does everyone believe that the mounting distortions in the prices of (titles to) capital goods will come without consequences for the financial markets and the real economy?

What happened to the army of analysts and economists? Has the fundamental law of economics escaped them?

Or does the management of the PSEi 30 levels represent part of the establishment’s manipulation of the Overton Window?

Sure, the mainstream media has been so desperate to see a "bull market" that they describe a 19-month high as a "historic moment."

However, much of today’s media reporting seems to be more than mere cheerleading: genuine journalism has been sacrificed in favor of copywriting for vested interests paraded as news. 

VI. The Unannounced "Historic Moments" 

But the so-called "Historic Moment" has manifested in many unpopular and unannounced forms.

Let us enumerate the most critical ones: 

First, systemic leverage, consisting of PUBLIC DEBT plus TOTAL bank lending, has reached Php 28.515 trillion as of July 2024, accounting for 113% of the estimated 2024 NGDP!  Public debt servicing has also reached unparalleled levels!

Second, Q2 public spending, the financial industry’s net claims on the central government (NCoCG), and the banking system’s held-to-maturity (HTM) assets have also reached all-time highs.

Third, the banking sector’s business model transformation—from production loans to consumer loans—has been unprecedented.

Fourth, the savings-investment gap has reached a significant milestone.

Fifth, PSE borrowings, led by San Miguel’s Php 1.484 trillion, have also reached historic highs.

Sixth, the money supply (M1, M2, and M3) relative to GDP remains close to its record highs in Q1 2021.

Figure 6

Seventh, the BSP’s asset base remains near the record high attained during the pandemic bailout period (as of June 2024.) (Figure 6 topmost chart)

While there are more factors to consider, have you heard any media or establishment mentions or analyses of these issues?

Don’t these factors have an impact on the "fundamentals" of the PSE or the economy?

Or are we expected to operate under a state of "blissful oblivion," or the blind belief that "this time is different?" (The four most-deadliest words in investing—John Templeton)

It not only fundamentals, the current phase of the market cycle also tells a different story than the consensus whose primary focus is on a "return to normal" phase. (Figure 6 middle and lowest graphs)

Good luck to those who believe that the PSEi 30’s 7,000 level signifies a bull market or a historic moment.

____

References

The OFCs sub-sector includes the private and public insurance companies, other financial institutions that are either affiliates or subsidiaries of the banks that are supervised by the BSP (i.e., investment houses, financing companies, credit card companies, securities dealer/broker and trust institutions), pawnshops, government financial institutions and the rest of private other financial institutions (not regulated by the BSP) that are supervised by the Securities and Exchange Commission (SEC).

Jean Christine A. Armas, Other Financial Corporations Survey (OFCS): Framework, Policy Implications and Preliminary Groundwork, BSP Economic Newsletter, July-August 2014, bsp.gov.ph

 

The PSEi 30 6,500 Enigma: A Closer Look at the Widening Gap Between PSEi 30 and Market Internals

 The house of delusions is cheap to build but drafty to live in, and ready at any instant to fall—A. E. Housman

The PSEi 30 6,500 Enigma:  A Closer Look at the Widening Gap Between PSEi 30 and Market Internals

Along with the rise in global risk appetite, the Philippine PSEi reached 6,500 but its market internals told a different tale. 

The prospect of easy money has whetted the speculative appetite of the global financial markets.

With the US dollar index down by 0.92% this week, it spurred a rally in the currencies and stock markets of the Asia-Pacific region.

Figure 1

Five of the nine ex-Japan Asian currencies rose, led by the Thai baht (THB), Indonesian rupiah (IDR), and the Singapore dollar (SGD). The Philippine peso  (PHP) increased by 0.14%. The heightened speculative fervor was apparent in the region's stock markets. (Figure 1, upper window)

Seventeen of the 19 national bourses in the Asia-Pacific region jumped by an average of 1.43%. China's SSEC and Sri Lanka's Colombo were the only laggards. (Figure 1, lower chart)

Meanwhile, five of the national bourses set fresh all-time highs for the week: Japan, India, Taiwan, Mongolia, and Pakistan.

Simultaneously, the Philippine PSEi 30 marked a second straight weekly gain. 

However, there is an idiosyncratic story behind the PSEi 30’s surge.

Figure 2

This week's advance brought the PSEi 30 back into positive territory year-to-date (+0.66%). 

But gainers were in the minority, with 14 of the 30 members closing higher. Four of the five biggest market cap issues were the focal point of this week's advance. (Figure 2, topmost pane)

Ironically, the average weekly return was only 0.12%, indicating that on an equal-weighted basis, the overall performance was subdued due to balanced upside and downside returns from its members. 

Market breadth in the PSE was slightly negative, with decliners leading advancers for the second consecutive week. (Figure 2, second to the highest image)

Though mainboard volume fell by 23.1% to Php 3.69 billion, the top 10 brokers still controlled a significant majority, averaging 57% of it. (Figure 2, second to the lowest diagram) 

Further, the top 20 traded issues represented 86.1% of the mainboard transactions. (Figure 2, lowest chart) 

All this illustrates the skewed nature of trading activities where institutional players have been propping up the headline index. 

Figure 3

This week’s pump led by ICTSI (+2.92%) has elevated its free float market cap to its highest level. (Figure 3, topmost chart) 

Pumps in BDO (+8.3%) and SM (+2.35%) have also boosted the top 5's free float cap to 50.5%.  BDO ranked third after SM and ICT in terms of free float market cap. 

The share of the top 5’s free float market cap jumped to 50.5%. 

Incidentally, end-session pumps and dumps were comparatively insignificant compared to previous weeks.

Figure 4

In any case, however one slice or dice it, the slack in volume remains the principal factor behind the nearly decade-long drought in returns.

June's gross volume reached a low not seen since 2010, while the first semester's gross volume plummeted to 2011 levels. (Figure 4, topmost and middle charts) 

It is no coincidence that the declining PSE volume has coincided with the banking system's liquidity metric: cash-to-deposit ratio. (Figure 4, lowest graph)

Despite all the constant yelling by the mainstream of statistical hypes, which have been labeled as G-R-O-W-T-H, the PSEi 30 remains one of the region's laggards, which are likely symptoms of capital and savings consumption.

And notwithstanding the perpetual cheerleading, the echo chamber has still been silent about the mounting risks from debt, leveraging, inflation, and various forms of misallocations and malinvestments. They’ve been reticent about the mounting risks of war too! 

Aside from the distortion from the BSP's policies, institutional pumping remains a significant factor behind this bear market. 

Or, the result of such organized pumps is to magnify pricing imbalance by inflating their share prices relative to their natural income streams and distorting capital prices, resulting in the amplification of the misallocation of resources in the real economy.

Figure 5

In the end, besides political objectives (e.g. rising stocks = resilient economy = good governance), another reason could be to prevent the PSEi 30 from sliding into a death cross, potentially prompting further and deeper scale of foreign selling (as in the past). Figure 5

It's worth noting that despite the obvious shift to a wartime economy, which comes at the expense of the market economy, authorities and the mainstream prefers the general public to remain complacent, assuming that everything will remain hunky dory or stable. 

In doing so, authorities can continue accessing public savings to fund their militant political projects (boondoggle) and exercise centralized control over the economy, with institutional cronies acting as their facilitators.  

Bubbles eventually burst. 

How Market Manipulation in the Philippine PSE Magnifies the Risks of a "Black Swan" Event

  

Dubious practices, fraud and embezzlement are common during financial bubbles, which are usually created by central banks’ loose monetary policies and by a poor supervision of the financial sector—Dr. Marc Faber

 

In this issue

How Market Manipulation in the Philippine PSE Magnifies the Risks of a "Black Swan" Event

I. BSP Chief: Black Swans from Risky Investments Based on the Rosy Scenario

II. Parabolic ICT as the Single Benefactor of the March 21st Massive End-Session Pumps!

III. The Rotational Pump from ICT to the Financial Sector

IV. How Market Manipulation Amplifies Systemic Fragility

V. January-February 2024: PSEi 30’s Returns Outperform as Volume Slumped!

VI. Negative Market Breadth, Rising Risks of a Black Swan Event from Sustained Capital Consumption

 

How Market Manipulation in the Philippine PSE Magnifies the Risks of a "Black Swan" Event

 

The BSP Chief recently warned about "Black Swan" events resulting from the market's risky behavior. However, frequent pumps and dumps at the PSE could be examples of such events.

 

I. BSP Chief: Black Swans from Risky Investments Based on the Rosy Scenario

 

We'll open with an excerpt from a recent speech of the BSP Governor covering the publication of the 2023 Financial Stability Report (FSR) [bold added],

 

You have heard of "black swans" indicating highly unlikely surprises or "the butterfly effect" to describe how small things can lead to far-reaching consequences. These are the things we worry about. Indeed, financial market participants often make risky investments based on rosy scenarios. The more widely shared the scenario, the more dangerous it is. When something goes wrong in these scenarios, it sometimes leads to mass panic. There is a rush for the exits, causing massive investments to collapse… We remember the crisis, but we often forget the rosy scenario that led to it.  (Eli Remolona, 2023)

 

The default or mechanical response of almost every political authority or expert is to blame economic volatility on the marketplace.  But they hardly reveal the source of funding and incentives of market participants that lead to such 'market failures.'

 

Besides, abstract attributions like "make risky investments based on rosy scenarios" don't cause boom-bust cycles.  

 

Instead, the fountainhead of increased economic and financial fragility stems from a deepening of the politicization of the economy, channeled through policies that lead to the excesses in the aggregation of many variables like systemic overindebtedness, a massive misallocation of resources, intensive mispricing of markets, and hyperbolizing economic and financial conditions via inflated statistics.

 

If so, have authorities not been a focal point in this "rosy scenario" that breeds "black swan" events?

 

II. Parabolic ICT as the Single Benefactor of the March 21st Massive End-Session Pumps!

 

Let us help in identifying one avenue for a potential "contagion."

 

Though fragrantly evident to the public, the establishment remains remarkably taciturn to the relentless "rigging" of the Philippine equity benchmark, the PSEi 30.

Figure 1

 

An example is the dominance of pre-closing dumps and pumps (Marking the Close—MtC) in three of the week's five trading sessions. (Figure 1, topmost graph)

 

The aggregate volatility from these MtCs totaled about 1.95% of the weekly close of March 15th.  That's about double the .87% advance posted by the PSEi 30 this week (March 22nd).

 

To achieve their end-session target for the PSEi 30, the collaboration by index managers typically involves bidding up/selling down several top-tier issues (at least 5).

 

But Thursday (March 21st) signified a historical event.  The cabal of index managers directed their actions to the share prices of a single firm, ICTSI [PSE: ICT].

 

ICT segued into the 5-minute pre-closing float period up by 2.16%—only to reopen during the runoff-closing period with a shocking spike of 9.28%—a massive pump equivalent to 7.12%! (Figure 1, middle pane)

 

Ironically, there were only 119 trades conducted during the runoff period, with a single institutional broker accounting for 68% of the total!  Only about 16 brokers participated in the massive bid-up, some of which were retail. 

 

In short, a few participants "forced up" ICT share prices in the closing period!

 

Consequently, ICT's free float share of the market cap stunningly flew to an all-time high (ATH) of 9.22% last Thursday!  ICT toppled SMPH for the third-largest PSEi 30 firm! (Figure 1, lowest chart)

 

Because of the intensity of the ICT's advance, PSEi 30 resonated with it: it jumped by .9% to close the session by 1.55%! Incredible.

 

III. The Rotational Pump from ICT to the Financial Sector

 

The next day, though ICT gave up all Thursday's MtC gain and more, index managers rotated their support of the PSEi 30 by propping the financial components, which cushioned the PSEi 30s decline to only 1.17%.

Figure 2

 

The financial index not only gained by 3.34% WoW, but the "full" market share of the big three PSEi 30 banks surged to an unprecedented 18.5% last Friday! (Figure 2, topmost and middle diagrams)

 

As of March 21st, the top 5 market cap heavyweights (SM, BDO, ICT, SMPH, and BPI) accounted for a staggering record 50.98% share! (Figure 2, lowest image)

 

When accounting for the next five largest market caps, their cumulative share of the market increases to 73%!

 

That's right.  Only five to ten components drive the PSEi 30!

 

Beyond that, the mounting concentration of gains not only reflects the intention to artificially prop up the index, it also indicates INCREASED CONCENTRATION RISKS.

 

IV. How Market Manipulation Amplifies Systemic Fragility

 

Further, political policies fuel the distortive effects of market manipulation, as noted back in 2017: (bold original)

 

These growing incidences of vertical price movements have not been isolated from the progressing entropic developments at the PSEi as a result of massive manipulations.

 

Most will be rationalized from a demand shock—new information that alludes to G-R-O-W-T-H regardless of the validity of its premises.

 

In reality, both market manipulation and vertical prices are symptoms of the mortal sins of unabated credit expansion or currency debasement. (Prudent Investor, 2017)

 

Because only a few issues have fueled the upside performance of the headline index, the sustained shortfall in volume points to the unsustainability of its momentum. 

 

Yet, without an increase in disposable incomes or "real" savings, this requires a sustained and intensified increase in inflows from foreign savers.

 

As fund manager John Hussman explained, (bold mine)

 

All securities are essentially a way to trade current saving for a claim on future output. The value of all the securities in the economy derives from the claim on future output that this stock of real and intellectual capital can generate over time. During speculative bubbles and periods of malinvestment, saving is invested in unproductive projects that essentially result in unintended consumption rather than accumulation of productive assets. This means that the stock of outstanding securities is essentially “backed” by a smaller stock of productive capital to service those securities over time. (John Hussman, 2015)

Figure 3

 

Volume spikes rather than sustained increases have characterized the PSEi 30's race to 7,000. Ironically, the pesos’ mainboard volume remains below the Q3 levels! (Figure 3, upper chart)

 

Furthermore, market breadth has barely supported the .87% weekly advance by the PSEi 30 as the advance-decline distribution has been almost neutral for the PSE (490-491) and the PSEi components (15-14 and one unchanged).

 

Though the character of the 'rosy scenario' presented by the upswing of the PSEi 30 has been starkly different from a generalized boom phase of a full-fledged credit bubble as exemplified by India's case, this imperative to force upon a bull market cosmetically and inorganically shares a similar outcome: capital consumption that leads to a bubble bust. (Figure 3, lower visuals)

To sum it up, the intensifying vertical price actions of a few PSEi 30 heavyweights, backed by rotational pumps, are likely indications of mounting desperation to foster a bull market.  However, its inability to sustain such momentum could indicate buyer exhaustion and a potential (secular) reversal.

 

V. January-February 2024: PSEi 30’s Returns Outperform as Volume Slumped!

 

To expand our insights on the local market structure, let's analyze the first two months of PSE/PSEi 30's performance in 2024.

Figure 4

 

Sure enough, it's impressive that the PSEi 30 reached 6,900 in February, but the gross volume, which includes block trades and cross sales, tumbled to levels last seen in 2011!  (Figure 4, upper chart)

 

Put another way, while the PSEi 30 vaulted by 7.7% from end-December through February 2024 to shatter the decaying returns over the long term, this occurred in the face of sputtering volume.  That is, the PSE's gross volume plummeted 26.4% YoY! Amazing! (Figure 4, lower graph)

Figure 5

That's a measure of the general performance.  As a share of the total, the first two months saw a rebound in the volume of the holdings (2 years) and the property sector (from last year) compared to the slowing Financials (YoY).  (Figure 5, topmost diagram)

 

In contrast, the peso volume of industrials and services, which include the "Fly Me to the Moon" ICT, resumed their downward trek (in the last 2 and 3 years respectively).  Remarkable. (Figure 5, middle image)

 

The pecking order of peso volume by sector share in the first two months of 2024: Holdings, Industrials, Financials, Property, and Services. (Figure 5, lowest window)

Figure 6

 

Paradoxically, the financial index, which stormed towards its 2018 All-time high (ATH), saw its peso volume contract by 30.5% YoY! (Figure 6, upper chart)

 

Since the BSP's unprecedented rescue of the banking system in 2020, Financials have outperformed.

 

Specifically, the PSEi 30 banks have been responsible for most of the gains in the Financial Index. Apart from the ICT sector, rotational pumps into PSEi banks have contributed significantly to the PSEi 30's advances.

 

VI. Negative Market Breadth, Rising Risks of a Black Swan Event from Sustained Capital Consumption

 

It is not just volume but market breadth remains in stagnation.  Despite marginal improvements (from 2020), the advance-decline spread remained negative. (Figure 6, lower image)

 

The volume slump and poor market breadth reveal the lack of participation from the general public.

 

The genuine bull market climaxed or culminated in 2013, after which the rest of the index performance was primarily characterized by strategic maneuvers.

Figure 7

 

Let us unpack this.

 

The deficiency of the PSE’s trading volume didn't emerge out of a vacuum. These can be traced back to the diminishing liquidity in the banking system (expressed by the cash-to-deposits downtrend), which has, in part, been exacerbated by the swelling of the government’s deficit spending.  (Figure 7, top and middle graphs)

 

Bluntly put, diminishing volume is a symptom of capital consumption.

 

In the end, what have the authorities done to decrease the odds of an outbreak of (future) economic volatility or a "black swan" event resulting from (today's) market manipulation or "risky investments based on rosy scenarios?"

 

What will they do to diminish its impact?  

 

Do they even know? Have they been "asleep at the wheel?"

 

Or have 'risky investments' become too politically entrenched to perpetuate their refinancing and credit expansion to fund malinvestments, which have been peddled to the public under a statistically 'rosy scenario'? (Figure 7, lowest chart)

 

"Market failure," really?

___

References

 

Eli M Remolona, Governor of Bangko Sentral ng Pilipinas:  Message during the release of the 2023 Financial Stability Report, 13 February 2024, Bank of the International Settlements, March 22, 2024

 

Prudent Investor Newsletter, BW-SSO Price Actions and Market Manipulations Signify as Twin Symptoms of the Raging Credit Bubble! February 13, 2017

 

John P. Hussman, Ph.D Stock-Flow Accounting and the Coming $10 Trillion Loss in Paper Wealth Hussman Funds, April 6, 2015