Melt-Up! Philippine Financial-Bank Index Hits a Milestone High!

 

Causa remota of any crisis is the expansion of credit and speculation while causa proxima is some incident that saps the confidence of the system and induces investors to sell commodities, stocks, real estate, bills of exchange, or promissory notes and increase their money holdings. The causa proxima may be trivial: a bankruptcy, a suicide, a flight, a revelation of fraud, a refusal of credit to some borrowers, or some change of view that leads a market participant with a large position to sell. Prices fall. Expectations are reversed. The downward price movement accelerates—Charles P. Kindelberger 

In this issue

Melt-Up! Philippine Financial-Bank Index Hits a Milestone High!

I. US Banks Powered Global Financials ETF to a Record High!

II. Melt-up! The Philippine Financial-Bank Index Carves a Fresh All-Time High!

III. Tightening, what Tightening? Finance Outperformed the PSE Since 2020, Banks Centralize Financial Resources

IV. The Paradox of Financial and Real-Estate Performance; Year-To-Date Performances of Listed Banks

V. Record Financial Index: From the Perspective of Volume and Foreign Money Flows

VI. Cross-Border Leveraged Speculation Powered the Record High of the Financial/Bank Index

VII. Bank Borrowings in a Melt-UP Phase too! Conclusion

Melt-Up! Philippine Financial-Bank Index Hits a Milestone High!

The share prices of many Philippine banks have been in a melt-up. But what’s been driving this surge?

I. US Banks Powered Global Financials ETF to a Record High!

Thanks to the extraordinary loosening of financial conditions, which has spurred booming credit and stock market activity, some of the top U.S. banks reported exceptional performance in Q3 2024 last week.

As a result, share prices of Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) soared to all-time highs.

In turn, BlackRock’s iShares Global Financials ETF, the IXG (NYSE ARCA: IXG), which has been on an uptrend since the lows of October 2020, also reached a fresh record high after surpassing its previous peak set in 2007.

The IXG's portfolio consists of 209 global equities primarily in financial services and banking, with over 55% of its holdings in US markets. This week, the IXG surged 2.25% and has generated a 26.13% return in 2024 (as of October 18).

Figure 1

Financials ranked fourth among the best-performing sectors in the S&P 500, with a 26.5% return, trailing Information Technology at 33.25%, Utilities at 29.3%, and Communications at 28.3% (as of October 18). [Figure 1, topmost table]

Despite the backdrop of supposedly high interest rates, October 2022 marked a turning point for the financial sector. This followed the Bank of England’s (BoE) intervention to rescue its troubled pension funds during the selloff of UK bonds.

The subsequent bailout of U.S. banks during the 2023 crisis further emboldened speculative activity, as central bank interventions have created what many view as a "moral hazard"—the belief that central banks will always step in to support the markets.

Expectations of easing by the Federal Reserve and other central banks have fueled the blistering rise of the IXG. The rapid pace of this ascent bears an unsettling resemblance to the 2007 episode, which preceded the Great Financial Crisis (GFC). [Figure 1, middle image]

II. Melt-up! The Philippine Financial-Bank Index Carves a Fresh All-Time High!

What does this have to do with the PSE?

The PSEi 30 closed the week ending October 18th up 1.44%, pushing 2024 Year-to-Date (YTD) returns to 14.97%.

Leading the gains this week was the Financial/Bank Index, with a 3.5% spike, followed by the Property Index, which climbed 2.11%.

The strong performance of the banking and property sectors supposedly reflects the Bangko Sentral ng Pilipinas' (BSP) announcement of its second round of rate cuts, effective October 17.

With this week’s surge, Financials have swiftly secured the second spot YTD with a 39.3% return, closing in on the ICT-led Service Sector, which holds the top position with 40.7%.

Since the PSEi 30 hit its June 2021 lows—mirroring trends in the U.S.—financials have sprinted ahead of other sectors. The Financial Index returned 29.9%, followed by the Property Index at 25%, both contributing to the PSEi 30’s overall 20.4% gain over this period. (Figure 1, lowest graph)

Figure 2

Here’s the thing: the Financial/Bank Index set a new record last September, surpassing its January 2018 high of 2,325.65. In a parabolic fashion, similar to global markets, the financial/bank index decisively reinforced its end-September breakout with this week’s push to 2,421.6. (Figure 2, topmost chart) 

Once again, China Bank’s incredible vertical rise is unprecedented, showcasing price volatility that is unbecoming of traditional banks. (Figure 2 middle chart) 

As previously pointed out, similar to the Lehman episode, skyrocketing prices tend to disguise underlying problems. 

In essence, the parabolic rise of financials hardly indicates a healthy bull market. If history serves as a guide (as seen in 2012 and 2018), this could be a sign of an interim top. 

Or could this time be different? 

III. Tightening, what Tightening? Finance Outperformed the PSE Since 2020, Banks Centralize Financial Resources 

The Financial/Bank Index currently consists of eight constituents: seven banks—Asia United Bank [AUB], BDO Unibank [BDO], Bank of the Philippine Islands [BPI], China Banking [CBC], Metrobank [MBT], Philippine National Bank [PNB], and Security Bank [SECB]—and one non-bank entity, the Philippine Stock Exchange [PSE].

Three of the bank members in the Financial Index are also part of the PSEi 30 composite, with two of them ranking among the top five.

While recent mainstream discussions have focused on how banks benefit from the liquidity injections via significant Reserve Requirement Ratio (RRR) cuts, and BSP rate cuts, the Financial Index has been outperforming the PSEi 30 since 2020. (Figure 2, lowest diagram) 

This trend began when the BSP implemented historic measures to support the industry, including quantitative easing (QE), rate cuts, RRR cuts, and relief measures.

This indicates that current dynamics represent a continuation of an underlying trend.

Figure 3

The BSP’s Total Resources of the Financial System (TRFS) data reveals that not only is it outgrowing GDP, but the share of banking resources—particularly from universal commercial (UC) banks—has been driving most of this growth. Philippine bank and UC bank share of the TRFS accounted for 83.4% and 78.05% last August. (Figure 3, topmost window) 

This highlights a concentration of resources and a deepening dependence of the economy on bank credit and liquidity. Thus, when officials claim they are promoting capital markets, it only holds true if banks benefit from it. 

Ironically, despite previous rate hikes, the TRFS suggests there has been little actual "tightening" or "restrictiveness" in the system. 

The outperformance of the Financial/Bank Index further confirms this. Yet, even with the availability of public data, discussions surrounding these insights are often sparse. 

IV. The Paradox of Financial and Real-Estate Performance; Year-To-Date Performances of Listed Banks 

In contrast, despite the substantial rebound in the Property Index from June 21 through September, it has yet to break its pattern of underperformance relative to the PSEi 30. (Figure 3, middle graph) 

These divergent trends suggest that, regardless of the measures undertaken by the BSP, the property sector remains hindered by internal challenges. 

In fact, contrary to most predictions, low interest rates have contributed to the real estate sector's struggles. As the BSP eased monetary policy over the past decade, the sector's value-added share of GDP fell to recent all-time lows—an indication of malinvestment. (Figure 3, lowest chart)

Figure 4 

Still, the Year-to-Date (YTD) performance of all listed banks, which has averaged a return of 27.08% as of October 18, has been skewed in favor of the banks that are part of the financial/bank index. (Figure 4, topmost image) 

Rocketing stock prices of Financial Index members AUB and CBC have delivered impressive YTD returns of 91.3% and 94.59%, respectively. (Figure 4, middle visual) 

Meanwhile, PSEi 30 mainstays BDO, BPI, and MBT produced returns of 25.7%, 37.9%, and 56.5%, respectively. SECB also saw a solid return of 36.5%. 

Have CBC and AUB struck a "gold mine" that the market has only recently discovered? 

V. Record Financial Index: From the Perspective of Volume and Foreign Money Flows 

Volume and foreign money flows offer another perspective.

Although the PSEi 30 briefly surged past 7,500 before retreating, trading volume remains relatively sluggish.  (Figure 4, lowest graph) 

But that’s only part of the story. 

What remains less known to many is that despite this overall lethargy, financials and banks have captured the bulk of the trading volume or a significant portion has been concentrated in financials and banks. 

The BSP and PSE have yet to release transaction data for August and September.

Figure 5 

However, using July data, the 7-month share of financials' volume relative to total market volume reached an all-time high of 23.7% in 2023. It has since retreated to 19.1% this year, the second-highest on record. That number, however, could reach a new high in October. (Figure 5, topmost image) 

As of October 18, the financial sector's share of gross trading volume had soared to 26.5% (and its share of mainboard volume to 29.6%). 

In other words, the financial/banking sector has absorbed about a quarter of the PSE's sluggish trading volume! That’s an astonishing level of concentration risk—Incredible! 

Given my limited access to sophisticated database organizing tools, I have only managed to tabulate foreign flows using October data, which is limited to the top five Financial Index members: AUB, BDO, BPI, CBC, and SECB. 

There is no question that these top five banks dominate the turnover share, accounting for 90.7% during the week leading up to October 18 and 84.8% for the entire month of October. 

VI. Cross-Border Leveraged Speculation Powered the Record High of the Financial/Bank Index 

But here are some additional insights: 

Net foreign inflows of Php 892.5 million for the top five banks represented 20.94% of the Php 4.261 billion total foreign inflows for October.

Notably, a substantial portion of this, accounting for 87.8% or Php 953.2 million, originated from last week alone, out of a total inflow of Php 1.086 billion.

In short, the recent surge to a record high in the Financial/Bank Index was largely driven by foreign capital, likely bolstered by the "national team" (such as the treasury departments of banks, Maharlika SWF and other financial corporations or OFCs?).

Stunning.

It’s looks likely that some of the foreign money chasing the U.S.-based IXG (iShares Global Financials ETF) rally has been positioning itself in emerging market banks like those in the Philippines. 

What we are witnessing appears to be unadulterated, leveraged speculative cross-border allocations, primarily focused on banks and, to a lesser extent, communications companies (telcos). [See returns of S&P 500 sector above] 

Further, the PSEi 30’s weekly breadth was overwhelmingly positive, with 19 of the 30 issues gaining and three remaining unchanged, averaging a 1.43% increase—almost mirroring the index’s actual weekly return of 1.44%. Two stocks, Meralco and Century Pacific Food (CNPF), hit all-time highs this week. (Figure 5, middle chart)

Weekly gains in the three banks contributed significantly to the PSEi 30’s performance. These banks accounted for 22.6% of the index, while the top five heavyweights—two of which are banks—commanded over half (50.83%) of the PSEi 30 as of October 18. (Figure 5, lowest pane) 

VII. Bank Borrowings in a Melt-UP Phase too! Conclusion

Before we conclude, as we await the PSE and the BSP to release September and Q3 data on individual banks and the overall banking system, it is noteworthy that some banks, such as PBCOM and PNB, have recently announced plans to raise funds through debt issuance in the capital markets.

Figure 6

It’s not just share prices that are surging—Philippine banks are also experiencing a sharp increase in borrowing—bonds and bills soared 32.3% in August. (Figure 6, topmost and middle graphs)

Why the rush to raise funds?

The answer lies in the ongoing deterioration of liquidity within the banking system, as indicated by declining cash-to-deposit and liquid-assets-to-deposit ratios. (Figure 6, lowest chart) 

The pressing question is: How will banks continue to fund the government under these conditions? The BSP’s response: Cut their Reserve Requirements, unleash liquidity! 

To wrap up, what you see in the media or mainstream discourse often doesn’t reflect the full picture. 

 

The 2024 Pre-SONA Pump: Philippine PSEi 30 Soars to 6,800 - History, Details, and Effects

In economics, hope and faith coexist with great scientific pretension and also a deep desire for respectability—John Kenneth Galbraith 

In this issue

The 2024 Pre-SONA Pump: Philippine PSEi 30 Soars to 6,800 - History, Details, and Effects

I. 2024 SONA Pump: Are Philippine Stocks and the Peso Immune to Global De-Risking and Deleveraging?

II. The History of BBM's Pre-SONA PSEi 30 Pumps 

III. Explaining the Index Pump: Concentrated Gains and Rotational Activities

IV. 2024 SONA Pumps: Concentrated Trading Activities amidst Decadent Volume

V. 2024 SONA Pumps: Concentration in Broker Activities with Marginal Brokers Squeezed Dry 

VI. More Signs of Liquidity Squeeze: Decaying Market Depth and Weakening Market Breadth 

VII. Divergent Signals from the SONA 2024 Pump: Key Points to Ponder

VIII. 2024 SONA Pump: Foreign Money Cushions Domestic Savings Deficiency

IX. 2024 SONA Pump: Engineered by Domestic Financial Institutions?

X. 2024 SONA PUMP: PSEi 30 at 6,800: Windfall from Liquidity Expansion and Conclusion 

The 2024 Pre-SONA Pump: Philippine PSEi 30 Soars to 6,800 - History, Details, and Effects 

As the Philippine President is about to deliver his third SONA, the PSEi 30 has surged for a fourth straight week to 6,800. What makes these gains artificial? 

I. 2024 SONA Pump: Are Philippine Stocks and the Peso Immune to Global De-Risking and Deleveraging? 

The Philippine PSEi 30 closed the week ending July 19th just shy of the 6,800 level. 

Philstar.com, July 20: The local stock market inched its way closer to the 6,800-level, finishing the week on a high note despite a downtrend in Asian shares. The local stock market inched its way closer to the 6,800-level, finishing the week on a high note despite a downtrend in Asian shares… a stronger peso and optimistic economic prospects buoyed local market sentiment… also anticipating the second quarter corporate earnings results. 

In addition to the above, 'strong net foreign buying' contributed to this outperformance. 

Previously, a more prominent explanation had been expectations of rate cuts by the Fed and potential monetary easing by the BSP. 

Financial market news coverage has been mechanically influenced by current events—specifically, the 'availability bias' described in post hoc narratives: because of this event, therefore that. As a result, recent events receive disproportionate attribution and focus. 

However, there seems to be a crucial event missing from this coverage: the political leadership is slated to deliver the annual State of the Nation Address (SONA) on July 22nd, Monday. 

Figure 1 

With a 2.16% advance this week, the PSEi 30 has enjoyed its fourth consecutive weekly winning streak. This weekly gain has propelled the Philippine benchmark to be the second-best performer among its regional peers, following Mongolia’s MSE. (Figure 1, topmost image) 

Remarkably, the PSEi outperformed amidst a prevailing downturn in the Asian market, where 12 out of the 19 national benchmarks closed lower by an average of 0.53%. 

Furthermore, the increased risk appetite for Philippine assets was also reflected in the Philippine peso, which was the only Asian currency to advance this week amidst a strong USD. (Figure 1, middle graph) 

The US dollar index $DXY grew by 0.27% WoW, but eight of the nine regional currencies, excluding Japan, closed lower. 

The USD-Philippine peso $USDPHP retraced by 0.08%, from last July 12’s quote of Php 58.38 to Php 58.335. 

While the yield of the Philippine 10-year bond dived a week earlier, paving the way for its outperformance in the region, it remained unchanged this week as most of the regional peers experienced declines. (Figure 1, lowest diagram)

Figure 2

In contrast, Emerging Asia’s 5-year credit default swap (CDS) exhibited a 520-basis points spike in Philippine CDS (ADB data), indicating that while it comes from a low base, a sustained regional risk-off sentiment could reverse any recent gains. China’s CDS soared by 930 bps. (Figure 2, topmost and middle charts) 

How do the causalities cited by the local media fit into this context? 

The strengthening dollar, falling bond yields, declining stocks, and rising CDS are likely symptoms of de-risking and deleveraging in the face of slowing economies and potential rate cuts. 

Are Philippine stocks and the peso suggesting immunity to this emerging phenomenon? 

II. The History of BBM's Pre-SONA PSEi 30 Pumps

Here is the most important thing the echo chamber has critically missed: 

Since the inauguration of the incumbent President in 2022, the PSEi 30 has enjoyed a series of pre-State of the Nation Address (SONA) pumps. 

The incumbent's previous SONAs were on July 25, 2022, and July 24, 2023. 

From the 6,065.23 trough on June 23, 2022, the PSEi 30 soared to a peak of 6,863.86 on August 19 of the same year, delivering a 13.17% return. (Figure 2, lowest graph) 

The PSEi 30 then surrendered all of those gains and more but found a second post-election honeymoon in October, alongside the UK’s Bank of England (BoE) rescue of its emerging pension crisis, which saw global stocks bottom and reverse to the upside. 

The second SONA pump began on July 7, 2023. It emerged from an interim low of 6,379.03 to reach an interim high of 6,679.13 on July 26, 2023, resulting in a 4.7% return. 

In both instances, the PSEi 30 surrendered all its fleeting gains in no time. 

The third SONA pump came at the temporary bottom of 6,158.48 on June 21, 2024, following the Ayungin Shoal incident. Through July 19th or at 6,791.69, the PSEi 30 has returned by 10.3%. 

How will this time be different compared to its recent predecessors? 

Nota Bene: The SONA pumping cycle doesn’t necessarily end on its actual date, as factors such as momentum and domestic and local liquidity flows may determine its lifespan. 

III. Explaining the Index Pump: Concentrated Gains and Rotational Activities 

Why is it an index pump?

Figure 3

This week's 2.16% gain represents the largest week-before-SONA returns. (Figure 3, topmost chart). The difference between the present and previous environments doesn't provide a relevant comparison or suitable probabilities for making a forecast. For instance, the political-economic landscape of 2009 and 2010 was influenced by the climax of the Great Financial Crisis. 

This week’s gains were once again concentrated on the (free float) market cap heavyweights. 

While it may be true that 20 of the 30 member issues were up this week, the outsized gains of the top 10 issues, which carried an astounding 72% share of the PSEi 30 (as of July 19th), delivered the gist of this week’s 2.16%. (Figure 3, middle graph) 

On average (equal-weighted price change), the weekly return was only .92%. 

The substantial difference between the average and the change in the headline index was principally due to the free float weights. 

And this week’s activities resonated with the last four-week performance. 

Fundamentally, while the PSEi 30 was up 10.3% from June 21st to July 19th, the accrued gains were largely derived from the top 5. 

Again, while 22 of the 30 member issues rose during this period, the average gain was 5.48% indicating the spread caused by distortions of the free float market cap relative to the equal-weighted price change. (Figure 3, lowest visual) 

Moreover, the top 5 issues, which expanded by an average of 15.4%, accounted for most of the 5.5% four-week average growth. 

Figure 4

In addition, the 51.17% pie of the top 5 heavyweights have drifted close to their recent milestone levels, with the index pumps rotating among the heavyweights. (Figure 4, topmost graph)

That is, shifting or rotational pumps from ICTSI to the financial 3 to the other market cap heavies—which presently includes the real estate members! (Figure 4, middle and lowest windows)

IV. 2024 SONA Pumps: Concentrated Trading Activities amidst Decadent Volume

Figure 5

Aside from the incredible pre-closing pumps and dumps contributing to the headline returns, the 2024 version of SONA pumps has emerged against the backdrop of a DETERIORATING mainboard volume! (Figure 5, topmost graph)

As an aside, we omitted posting recent charts of pre-closing massive pumps and dumps to conserve space.

At least there was some volume surge in previous SONA pumps, which is certainly lacking today. And incredibly, little is known about how cross-trades have padded such low-volume pumps.

However, it has not just been the PSEi 30 market cap weightings; the lean trading volume has also been concentrated among the heavyweights.

For instance, the Sy Group's share of the main board volume has been rising in support of the pumps to its shares. (Figure 5, middle pane)

Additionally, the volume share of the top 20 traded issues accounted for 83.6% over the 4-week period, slightly higher than the 83.1% year-to-date. This means that less than 20% of the volume has been dispersed among the other 264 listed companies. Duh!

The PSE noted that there are 284 listed firms as of the second quarter. 

V. 2024 SONA Pumps: Concentration in Broker Activities with Marginal Brokers Squeezed Dry

More to this point:

Although the overwhelmingly dominant share of the top 10 brokers decreased from 59.16% YTD to 57% in the four-week SONA pump, the number of total active participating brokers fell to its lowest level (since I began plotting it). (Figure 5, lowest image)

This means that while transactional volume has spread to a wider scope of brokers, which is good news, the plunge in the active share of participants implies that current conditions have squeezed the marginal brokers, which is bad news.

The PSE also noted that there are a total of 122 active brokers in their Second Quarter Report. 

Could this be confirmation of our prediction that a large segment of marginal brokers will become extinct soon?

And the above data reveals the extent of concentration of trading volumes and trading participants to an elite cabal, who are likely managing the PSEi 30 levels.

VI. More Signs of Liquidity Squeeze: Decaying Market Depth and Weakening Market Breadth

Figure 6

Naturally, the insufficiency in volume and market depth translates to the underperformance of market breadth.

While this week's market internals showed advancing issues marginally higher by 53 against declining issues, from the June 21st low to the present (SONA pump 2024), decliners remained ahead of advancers 1,924 to 1,888, a spread of 36 in favor of decliners.

This means that the headline performance has starkly diverged from the PSE universe. Incredible.

Another likely indicator of general market sentiment is the participation level of traded issues.

Unlike in the prior SONAs where the number of traded issues saw slight increases, we have been witnessing the opposite in the present conditions—a contraction!

The decreasing rate of average daily traded issues accentuates the ongoing liquidity squeeze at the PSE.

Other measures, such as the average daily number of trades and the average daily volume per trade, exhibit the same worsening liquidity drought.

VII. Divergent Signals from the SONA 2024 Pump: Key Points to Ponder

Yet, for prudent investors, here are some critical points to ponder:

-How can this be a bullish sign when the 10% increase in the Index has been accompanied by a drought in volume supported by stagnant participation and decaying breadth?

-Why would the increasing concentration of the index, trading, and market activities not signify an INCREASING risk to financial stability?

-How could the ARTIFICIAL embellishment of the index signify a bullish sign?

Lastly, why and how would these orchestrated campaigns to impose price distortions not magnify increasing imbalances and malinvestments in the PSE, the local capital markets, and the economy?

VIII. 2024 SONA Pump: Foreign Money Cushions Domestic Savings Deficiency

What is the source of financing for the SONA pump?

In essence, savings or credit are the sources of investments (real or financial).

Under the classical gold standard, credit represents the savings of another individual, intermediated by depository institutions.

Under the current fiat money, the US dollar standard, credit can account for "money from thin air."

How has the PSE's low volume signified a sign of increased savings? Or has institutional money been tapping credit for the SONA pump?

Or has the PSEi 30 been reliant on foreign savings and leverage (carry trades)?

PSE data provides some clues:

True, aggregate foreign money flows surged to PHP 2.8 billion this week, the largest since May 17, 2024. 

However, the degree of flow has failed to boost the PSEi 30 during the SONA pump in 2023 and may represent a temporary dynamic today.

As it stands, in the world of global financialization, foreign money flows may account for fund flows by affiliates or subsidiaries of PSE-listed firms registered abroad and offshore firms of allies and colleagues, rather than from money managers in search of higher returns.

These fund flows may be used to artificially inflate statistics to show increased interest by foreigners "to paint the tape."

In any case, while foreign flows cushioned the ongoing decline in trading volume this week, these inflows accounted for a mere PHP 93.6 million from the June 21st trough. 

The spike in this week's flows reveals that foreign flows have largely been absent in the previous three weeks, and it is likely that the 2024 SONA pump has been engineered by domestic financial institutions. 

Our guess: Could this partly be the handiwork of the Maharlika Sovereign Wealth Fund and other government financial institutions? 

More importantly, despite foreign flows, trading volume remains in the doldrums, exposing only the deficiency in savings. 

Yes, the Philippine Statistics Authority declared an increase in gross savings in 2023. However, the broader picture tells us a different story: a marginal rebound following a collapse. 

Yet, questionably, this savings data is determined by GDP! 

IX. 2024 SONA Pump: Engineered by Domestic Financial Institutions?

There are clues pointing to this possibility. 

The SONA pumps may involve Other Financial Corporations (OFCs). 

For instance, according to BSP data covering Q3 2023: "Based on preliminary results of the Other Financial Corporations Survey, the domestic claims of the other financial corporations grew by 2.4 percent in Q3 2023… 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)

Figure 7 

Claims on the private sector surged at the end of Q2 2023 going into Q3 2023. (Figure 7, topmost graph) 

Did flows from the OFCs account for the SONA 2023 pump? 

What about in 2022? 

While the Q3 2022 data was silent on claims on the private sector, the reversal from outflows in Q2 2022 could have been indirectly responsible for the June to August 2022 SONA pump, which delivered a 13% gain. 

X. 2024 SONA PUMP: PSEi 30 at 6,800: Windfall from Liquidity Expansion and Conclusion

Furthermore, signs of accelerating liquidity growth could extrapolate to money diffusion into the PSEi 30, channeled through orchestrated or engineered asset pumps. 

May's fourth largest public spending, possibly representing an early-stage distribution of liquidity from the pre-Election "Marcos-nomics stimulus," may also have been used by banks and non-bank financial institutions for the 2024 SONA pump. 

This has a precedent. 

An uptrend in the growth of cash in circulation financed the previous national (Presidential) elections, which percolated into the pumps of SONA 2022 and the 2022 post-election stock market honeymoon. 

Another factor was the spillover from the historic PHP 2.3 trillion liquidity injections in 2020-2021 by the BSP to rescue the banking system—which was sold to the public as benefiting the economy. 

An uptick in the growth of cash in circulation from April to October 2023 also supported the 2023 SONA and the Q4 2023 rally in the PSEi 30. 

How does this apply to the present? 

May 2024's cash in circulation growth of 6.1% represents the highest level since December 2022, which fund flows have likely spurred this SONA 2024 pump. (Figure 7, middle image) 

It is unsurprising that a substantial part of liquidity growth has been partly funded by bank credit expansion. 

Universal Commercial Bank lending growth, which may have been used to finance pre-election spending in 2021-2022, has been manifested in the pumps of SONA 2022 and the post-election honeymoon. And its reduced growth may have depressed the returns of the SONA 2023 pump. (Figure 7, lowest chart) 

Finally, the accelerating UC bank lending growth from Q4 2023 to the present has been instrumental in financing the 2024 SONA pump. 

As previously explained, though disinflation could prevail in the interim due to the slowing real economy, supported by the rise in non-performing loans (NPLs), which may constrain the uptrend in bank lending, sustained increases in deficit spending should put a floor on inflation. 

A resurgence of inflation, which should cap interest rate cuts, will further expose imbalances and malinvestments resulting from all these orchestrated attempts to create an artificial economic and financial boom through credit expansion, price manipulation, and statistical artifices. 

Although the political leadership did not explicitly mention the stock market to boost his political capital during the previous SONAs, the message—implying "strong earnings growth ", "optimistic economic prospects", a "stronger peso," and so on—represents the commonplace conveyance by institutional mouthpieces in explaining the recent spike in the PSEi 30. 

However, when everything goes off the rails, it has to be either the US Federal Reserve or something foreign, but hardly ever local affairs (attribution bias). 

QED.  

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)