PSEi 30 6,700: The Return of the Bull Market or Bull Trap?

 

We can chart our future clearly and wisely only when we know the path which has led to the present—Adlai E. Stevenson

 

PSEi 30 6,700: The Return of the Bull Market or Bull Trap? 

Would a breach of the Philippine PSEi 6,700 level lead to a sustainable bull market? Or does this represent a bear trap?

Figure 1

 

The mainstream has used this symmetrical triangle chart to predict the "return" of the bull market.   The kernel is:  that an upside breakout from it should spur a sustained uptrend. (Figure 1, upper chart)

 

Yet, they omit to spell out the probability of its success.  Certainly, some breakouts could become self-fulfilling, but others don't.  And like thumbprints, a price chart is distinct from another.

 

Next, seeking patterns in charts to support a prejudice could be about attentional bias—"the tendency to prioritize the processing of certain types of stimuli over others."

 

Lines can be drawn to fit into one's predisposition.  The PSEi 30 chart has broken out depending on the base used.

 

Also, since charts are supposed to incorporate all available information, does this include the issue of managed pumps?

 

And there is the agency problem, selling investment themes to boost institutional income rather than helping savers generate optimal returns.

 

Sure, index managers may find support from the local version of the Sovereign Wealth Fund, Maharlika Investment Fund, but funds for market placements are also limited.

 

Has the recent ramp to 6,700 been spontaneously driven by market forces, or have these represented "engineered pumps" by politically motivated entities?

 

Last week, pre-closing "dumps" on 4 of the five sessions shaped the path to 6,700. "Pumps and dumps" occurred in three of the four sessions. (Figure 1, lower diagram)

Figure 2

 

Ironically, despite marginal foreign buying, the average daily mainboard volume increased 13.8% from Php 4.14 billion to Php 4.7 billion.  (Figure 2, topmost window)

 

Foreign inflows accounted for Php 646 million, with foreign trade making up 49.7% of the weekly aggregate gross volume.  The inclusion of foreign money should have boosted volume considerably.  Instead, turnover remained subdued, implying the local institutions unloaded. (Figure 2, middle chart)

 

Figure 3

 

Though breadth was negative for both the PSEi 30 (13 decliners, one unchanged) and the PSE (466 decliners, 398 advancers), the PSEi 30 closed +.32% higher, pushing year-to-date returns to 4%. (Figure 2, lowest window and Figure 3, upper chart)

 

Retails have barely been present in the thrust to 6,700.

 

The biggest weekly push to the PSEi 30 emanated from the financials and services, particularly ICTSI. (Figure 3 lower graph)

Figure 4

The market cap of the top 5 issues (SM, SMPH, BDO, BPI, and ICT) climbed to an all-time high, backed by the three bank financials (BDO, BPI, and MBT) and ICT.  (Figure 4, top and bottom charts)

 

And pumps on the financial bigwigs of BDO and BPI have barely spilled over to the rest of the banking industry.  Security Bank and Union Bank have recently been sold off.

Figure 5

 

Moreover, trading volume has supported selective price gains. The volume of the Sy group of companies or BDO relative to the mainboard has been climbing (Figure 5, top and bottom graphs)

 

This week, the top 10 brokers accounted for 58.7% of the mainboard volume.

 

This concentrated activity points to institutional entities pushing up the big caps.

Figure 6

 

Of course, non-bank financials have been instrumental in supporting the PSEi 30.  From the BSP, "Moreover, the other financial corporations’ claims on the other sectors, particularly the private sector, grew as the sector extended more loans to households and increased its holdings of equity shares in other nonfinancial corporations." (bold added)

 

In Q3, the slowdown in the sector's buying led to the PSEi 30's cascade. Non-bank financials have also shifted from buying "banks" (Q4 2022 to Q2 2023) to "other non-financials." (Figure 6, top chart)

 

Finally, though the path to PSEi 30 6,700 may be selective, it depicts the loosening of monetary conditions.  The PSEi 30 has risen on the back of higher inflation (2015-2018) and (2020-2022). (Figure 6, bottom graph)

 

That said, recent advances in the PSEi 30 could foreshadow the return of inflation.

 

With systemic debt piling up, do current conditions support the return of the bull market or bull trap?

 

We offer a different view:  we are likely witnessing "blowoff" phases in several global markets in the face of mounting speculative leverage, anticipating low rates to sustain it. 

 

Markets have ignored several critical risk areas like China, global commercial real estate, escalating geopolitical tensions, and more.

 

Once this FOMO hits the wall, expect a test on the recent lows.

In the meantime or in the short-term, anything can happen.

 

 

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)