Diminishing Returns Have Plagued the PSEi 30 Since 2009!

Led by orchestrated pumps on a few heavyweights, the PSEi registered an incredible 10.2% MoM return in November.     

Figure 1 

Combined with the 7.2% gains in October, the two-month returns represent the largest since Sept-October 2010, the onset of a bull market.   

 

Many financial pundits have called for a "turnaround from the bear market." 

 

But are they looking at the right pictures?  

 

In contrast to popular opinion, diminishing returns have haunted the PSEi 30 since 2009.    

The YoY % change in November remained in a deficit, reinforcing its secular downtrend since 2009. 

 

The question is, what brought about such conditions?   Only from knowing the causation can we get a clue on its reversal.  

 

The BSP's zero-bound rates have led to the benchmark's lower returns.   

 

Figure 2 

It has fueled a surge in systemic debt (public and bank credit expansion) which also resonates with the decline in the yield of the PSEi 30.

As leveraging expanded, it eventually sapped out liquidity from the financial system through malinvestments, and so did the returns of the PSEi 30. 

Figure 3 

The liquidity classification for the above is the money supply growth (M3), representing the economy and bank liquidity via the cash-to-deposits ratio.  

 

Figure 4 

Finally, the slowdown in the CPI coincided with the peak in returns of the PSEi 30 in 2009.   

However, the comeback of the CPI in 2015 has also been accompanied by the slowing of the yield rate. 

Let us be clear.  The (statistical) inflation has always been present, except for the September and October deflation in 2015.   

What changed is the trend of the rate of change or its asymmetric distribution.   

But (monetary) inflation turned up in different areas at different times. Or, the process appeared as stages.  

First, the asset markets absorbed the liquidity.  

Later, liquidity percolated into the real economy as “inflation.” 

The PSEi 30 rode the 'genuine' bull market from 2009 to 2013 from its deluge.   The bull market was not just stocks but also seen in the peso and the fixed-income markets. 

But as the equity benchmark sprinted higher, returns declined.  

 

Next, the spillover of excess liquidity into the real economy magnified economic imbalances.  

 

Subsequently, this eroding bank liquidity spread into the financial system and the economy.   

Figure 5 

Such imbalances became evident in the downtrend in turnover of the PSE. 

 

Consequently, it reverberated in the returns of the equity market. 

 

BSP policies have plagued the PSEi and the PSE through the law of diminishing returns.

With all the accumulated maladjustments, how do you think the BSP can undo or overturn this?

Kaboom: The Telco Bubble Deflates as Globe Crashes into a Bear Market, Will Organized Pumping Shift to the Real Estate?

 Demand for investments rises with price. The result is that the most people own the most of something at the highest price. The crowd buys the top—Peter Atwater 

 

In this Issue 

 

Kaboom: The Telco Bubble Deflates as Globe Crashes into a Bear Market, Will Organized Pumping Shift to the Real Estate? 

I. Kaboom! GLO Crashes into a Bear Market! 

II. TELCO Bubble Deflates! With CNVRG in a Bear Market, Has TEL Peaked? 

III. Will Organized Pumping Shift to the Real Estate Sector After the Banks? 

IV. Once Again, The "Return to Normal" Chart Featuring the PSEi 30 

 

Kaboom: The Telco Bubble Deflates as Globe Crashes into a Bear Market, Will Organized Pumping Shift to the Real Estate? 

 

I. Kaboom! GLO Crashes into a Bear Market! 

 

Figure 1 

 

Following two consecutive weeks of declines, the share price of Globe Telecoms [PSE: GLO] plummeted 15.4% this week. Kaboom! 

 

Globe was one of the leaders to drive the PSEi 30 past the 7,000 levels. 

  

With its share prices down 25.9% from its November 2021 high, it may be safe to say that GLO has entered a bear market. 

 

Last August 30, 2021, we noted… 

 

To be sure, the share prices of GLO have undergone several episodes of extreme volatility since 1985. The milepost was in 1993. 

 

When the Phisix blasted off by 154% in 1993, GLO catapulted sixfold in just 11 months!  Of course, the 1993 feat is surmountable only if the current velocity of GLO's price ascent is maintained.  IF.  

  

Unfortunately, however, from that peak, GLO gave up all its gains and more in the aftermath of the Asian Crisis. 

 

Two more price spikes occurred in 2007 and 2015. Yet, in both instances, GLO prices roundtripped to where they originated. 

 

And strikingly, the 1993 high of 2,522 was temporarily toppled in 2015. That is, a recovery of the 1993 zenith took 22 years! 

 

It is not unusual to see parabolic behaviors of certain or even many stocks with general market peaks. 

 

See An Escalating or Climaxing Telecom Bubble?! Globe and Converge Prices Go Vertical! August 29, 2021 

 

If a rhyming of history occurs, then share prices of GLO will likely roundtrip and retrace to the 1,900 to 2,000 levels over time.  

 

Depending on overall economic and financial conditions, the support level of the second trendline could become an entry point.  

 

Yet, should a violation occur in the secondary trend line, the primary uptrend of Php 1,200 to 1,300 would be a more attractive entry point for long-term investors.  

 

No trend goes on a straight line, though.  

 

Historical share price volatility of GLO shows sharp bounces after a selloff, which indicates oversold conditions favoring a bounce soon. But this should be seen as a dead cat bounce. 

 

Nonetheless, the previous boom was rationalized first as about fintech/mobile banking, then about liberalization or 100% foreign ownership via the Public Service Act.  

 

Warren Buffett nailed it when he once said, "only when the tide goes out do you discover who's been swimming naked." 

II. TELCO Bubble Deflates! With CNVRG in a Bear Market, Has TEL Peaked? 

 

 

Figure 2 

 

It is not just GLO.  

 

Converge Information and Communications Technology Solutions, Inc. [PSE: CNVRG], another erstwhile leader, has entered a bear market in September 2021. As of Friday, it was down 35.7% from its October 2021 pinnacle.  

 

Buying interest has shifted lately to PLDT [PSE: TEL], which fell 2.66% this week. TEL reached a 5-year high but has leveled off by 5.4% from that point last Friday. 

 

In the same August outlook I wrote, 

 

The catalyst for the recent melt-up of GLO appears to be the entry of CNVRG into the Phisix. 

 

Given that the two previous leaders are in bear markets, it is likely that TEL may have reached its climax.  

 

The share of the free-float market capitalization of the telcos appears to be rolling over. 

  

If share prices of this sector continue to slide, their respective market cap share will likely weigh down the PSEi 30. 

  

Thus, to replace the sector requires the share price outperformance by another set of PSEi 30 members, which requires not only sharp gains in prices but also has a considerable share weight in the headline index. 

 

III. Will Organized Pumping Shift to the Real Estate Sector After the Banks? 

 

Figure 3 

 

So which issues will these be?

Aside from ICT, Jollibee, and the banks providing support, the Real Estate sector cushioned last week’s decline. The property sector jumped 2% last week, hoisting higher its free-float share of the market cap. 

 

Curiously, this rally emerged principally from SMPH, which share prices benefited from an incredible pre-closing pump last Friday to help power the week’s gains to 4.56%. 

 

Amazingly, pre-closing dumps dominated this week's trading sessions! 

 

Yet, share prices of ALI, SMPH, MEG, and RLC have been drifting in trading ranges and or sideways.  

 

For this sector to lead the PSEi 30, it would require not just outperformance but sharp upside gains to drive up its share of free-float market caps.  

 

The property sector is immensely sensitive to changes in interest rates because it heavily depends on debt for financing.  

 

With yields of the benchmark 10-year Treasury bonds surging higher, it should be a riddle how this could happen. 

 

But who knows, "whatever it takes" has been the shibboleth of index managers in their campaign to prevent a deflationary spiral.  

 

They did it with Telcos. They will surely try this sector as potential candidates thin out. 

 

Stunningly, a spike in volume accompanied last week's selloffs. 

  

In essence, the weak market internals of the "managed markets" exposes its vulnerability.  

 

How will the mispriced PSEi 30 and maladjusted fundamentals cope with a sustained rise in rates? That should be very interesting. 

 

IV. Once Again, The "Return to Normal" Chart Featuring the PSEi 30! 

 

Lastly, I missed showing the domestic headline index when I exhibited the "return to normal" chart last week.  

 

Here it is... 

 

Figure 4 

 

Position your portfolio accordingly. 

 

Yours in Liberty, 

 

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