Retail Underperformance Woes in Asia; VLL’s Magic Extends Thru the Week!

Retail Underperformance Woes in Asia; VLL’s Magic Extends Thru the Week!

Recall the angst endured by the retail investors on the underperformance of their equity portfolio?

Vista Land’s Amazing Friday’s Magic! A January Pullback in Build, Build, Build?! Blame Foreigners for Retail Underperformance!February 17, 2019

It turns out that this hasn’t been limited to the Philippines

From Matthews Asia: (bold added)

Is it time to get back in?

To be whipsawed one way by the markets and then whipsawed back the other way. How exciting! To see the drama of acute declines in the fourth quarter of last year only to experience the joy of a reversal in fortunes at the start of this year.

Precisely this kind of behavior in Asia's markets in the past has deterred the long-term investor. It is such volatility in prices that has frightened the long-term saver and emboldened the short-term speculator. Is there no hope for Asia's markets to evolve into a platform for long-term saving and investment?

Of course, their answer is a Y-E-S!

Warren Buffett once warned that one shouldn’t ask a barber if one needs a haircut. That is because industry people will typically talk up their business regardless of the real conditions. And inherent optimism may be mostly anchored on the endowment effectbias (people ascribe more value to things merely because they own them)

So serious investors would have to learn how to think objectively, filter with emotional intelligence and use critical analysis rather than swallowing “hook, line and sinker” the typical establishment’s ‘buy, buy and buy’ literature, lest suffer the fate of “pigs getting slaughtered” (Bulls make money, bears make money, pigs get slaughtered)

It is important to realize that the industry’s incentives are different from those of the savers. That said, the tone of their literature is likely a manifestation of their interest rather than of the savers.

The current state of magnified volatility hasn’t emerged out of a vacuum.

Unprecedented market and economic interventions have engendered the grotesque mispricing of financial assets and the flagrant maladjustments in the economy as evidenced by negative bond yields and record debt levels. Risk ON has revived the $11 trillion (WSJ Feb 18) negative bond yields.

Unless one thinks that risks from these trillion dollar deviations can be ignored, then yes, take the position for the long-term.

However, the other perspective is that magnified volatility maybe symptoms of unsustainable imbalances in search of an outlet valve. That is, under such a scenario, the probability is skewed towards risks rather than on rewards. Hence, short-term positioning rather than the long term is warranted. 

High time preferences (short-term orientation/ticker tape mentality) are really products of inflation policies.

The high priest of (monetary) inflation, John Maynard Keynes admitted to this:

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Haven’t we reached this state?

Anyway, back to the Philippines.

Would VLL’s repeated marking the close convince one to invest in the long-term?

Such end-session pumping signifies a short cut way of becoming a market-cap heavyweight. Except that such actions have NOT been the work of free markets.

And why wouldn’t there be magnified volatility when the prices have become utterly deformed?  Instead of a price clearing process, prices have been forced upwards for reasons other than to generate profits through price discovery. 

And why would such disfigured markets not be vulnerable to a crash?

And VLL has just been a symptom of the behavior that has characterized many actions at the PSE.

IF an SM led Friday +2.1% (mark-the-close) pump that helped pushed the PSYei 30 by .55% can happen, why not the price fix even the smaller issues?

And will such kind of actions deliver Alpha returns to the long-term investor? Or will it be maximum pain?

A reminder from Bill Blain:

The Market has but one objective: To inflict the maximum amount of pain on the maximum number of participants.

Attachments area

The Secret of Star Analysts; the Ayala Family Joins the Razons, the Gokongweis and the Tys in “Profit-Taking”

The Secret of Star Analysts

The financial markets of the European Union will be implementing a new legislation called the Markets in Financial Instruments Directive (MiFID II) in January 2018

Because part of the mandate includes the unbundling of market research with other financial services, some media analysts had a gander, not only at how valuable star analysts are worth but the role they play in the industry.

From Bloomberg Gadfly analysts Shelly Banjo and Nisha Gopalan

Many senior analysts spend only 10 percent of their time conducting research and writing reports. Teams of junior associates (or sometimes robots) maintain financial models and blast out notes. Some use pre-recorded voice mails to alert clients to new research.

Gadfly estimates that between 50 and 70 percent of a senior analyst's time is spent on corporate access. Things like arranging lunch with a CFO or connecting a client with a lawyer, supplier or other industry expert to delve into what the data doesn't. For this reason, analysts are often required to log the number of phone calls, meetings and events arranged each month.

The final 20 percent of an analyst's time is spent on pre-IPO research, conferences and bespoke projects, such as flying a drone over a retailer's parking lot to track how full it is; scoping the laundry outside apartment blocks; or conducting so-called channel checks to see how much oil's being pumped through a particular pipeline.

Sales and business development appear to be the main functions of star establishment analysts; that’s if we go by such observations. Objective in-depth assessments or evaluations of the companies covered by them have been virtually inexistent. What happens instead is that publicity materials are repackaged and presented as research papers. So such analysts essentially moonlight as copywriters or as public relations specialists. The conflict of interests between researchers and their clients/readers have been showcased by such arrangements.

I understand this because I have experienced it. I was once asked by a mid-scale listed firm to write about them in exchange for a paid vacation trip. Because I didn’t believe in the firm’s business model, I politely declined. I would be very much in the mainstream limelight and would likely be showered by perks and privileges had I pursued such path. But as tradeoffs, I would have comprised the interests of my clients and blog readers then.

Unlike the establishment, my work here is 100% objective (theory and empirical) research.

As a sales agent, I should benefit from encouraging people to transact. However, learning from experience, material benefits should be subsidiary to responsibility, as well as, to people relationships. In short, long-term goals must not be sacrificed for instantaneous or short-term gratifications. This position holds true for me even when my clients or readers don’t share my view.

From my perspective, the purpose of trade is to profit. A portfolio exists to handle a variety of trades in the objective of attaining generalized gains. Yet, perfection in trades is not the goal. To attain profits for the portfolio, whether through momentum or trend-following trades or value investing, such should translate to the suppression of risks and the maximizing of space for advances.

And this should apply even if I don’t directly handle my reader’s accounts.

For instance, not only do I send (post) this outlook for free, I do not benefit from non-stock recommendations. When I recommend a buy on the USD-peso, this is beyond my scope. To have a handle on this, readers can go to the banks and foreign exchange dealers have a handle on this.

In so many words, mandates like MiFID II or the US Fiduciary Rule would not be in place had transparency between principal and agent had been a priority and embedded as part of the industry’s culture.

 

Finally, here is an example of an important function that has persistently been ignored by the establishment. Well, it can be interpreted that way or has been designed to imprint on the public’s mindset as normative activities.

However, we are dealing here with the pricing system. Because it is ignored or deemed as a standard, does it mean that the manner of pricing securities have been irrelevant?

Will securities that have been priced unnaturally have only benefits? Will there be no long-term ramifications to the health of equity price trends? More importantly, what would be the transmission repercussions of such price signaling distortions to the capital allocation process in the real economy?  In short, the consequence from such deliberate distortions will span more than the stock markets and the real economy but have indirect social and political aspects too.

If the markets and the real economy will get affected, would such artifices have no consequences to the social and political front over time as well?

Finally, as an agent, I do not question any orders forwarded to me by my clients for execution. I am just a lowly order taker

The Ayalas Join the Razons, the Gokongweis and the Tys in “Profit-Taking”

Last Monday, a huge special block sale of Ayala Corp shares (7,063,490 shares at Php 1,060 per share) was posted at the PSE.

Unlike their peers, the Ayala’s reportedly unloaded Php 7.84 billion of their flagship company to foreign investors.

I saw only one stock market article which covered this. From the Inquirer:

Mermac Inc., the holding company of the Zobel family, sold a portion of its stake in Ayala equivalent to 7.06 million shares or 0.86 percent to a foreign institutional investor.

After the transaction—which was executed by BPI Securities and UBS Securities—Mermac will hold 47.75 percent of Ayala’s common shares and 55.56 percent of the voting shares, and will remain Ayala’s largest shareholder.

There are now four elite families who have sold part of their holdings to the public during the last two years through wholesale sales.

 

In 2016, as their share prices of their respective flagship firms were aggressively bid higher, the families of the Gokongwei and of the Tyliquidated a portion of them.

This year, ICTSI’s Enrique Razon joined this club to sell 3.18% of his Bloomberry holdings. [Wow. BPO Investments Collapse as the Phisix Storms to New Heights! ICTSI’s Razon Sells 3.18% of BLOOM; Signs of Wave of Insider Selling  September 24, 2017]

This week, it was the turn of the Ayala family.

As I have previously explained, the actions by these elites could be appreciated as likely expressions of demonstrated or revealed preferences. 

The easiest way to justify these actions is that they “took some profits”. Of course, they did.  

But the question is why did the Ayala’s opt to sell at 1,060 and not at 1,100 or 1,150 or higher if they so believe that their shares are worth MORE than their present prices? Or one can also ask why not lower at 1,000 or 980 or 950? Why Php 1,060 per share?

It would be useful to see the actions of Ayala’s predecessors.

Empirical evidence appears to support my hypothesis that perceived overvaluations were the foundations of such profit taking activities

The present price quotes of JG Summit, GT Capital and Bloomberry have significantly been lower than their published selling prices from the special block sales.

Moreover, sales by these titans occurred while the PSEi drifted at the range of milestone levels: 7,400 and 8,000.

And because the Phisix fell to a trough of 6,563.37 on December 23, 2016, JGS share prices even crashed to Php 65.55. The recent sprint to a record high for the Phisix buoyed JGS prices to current level but still below the threshold point where it sold in block. It is unclear if the Gokongwei’s bought back during the latest nadir.

Meanwhile, present prices of GTCAP shares have drifted near the December 2016 low of Php 1,120. So, the shareholders of GT Capital have missed entirely the “record” rally.

The point of this exercise is to show that while the elites took profits, they did so because they must have seen excessiveness in the way the markets have valued them. Thus, they capitalized on it.

And if they are right, this means they could be positioned to buyback their shares at significantly lower levels. Or perhaps they’ll just consume the profits.

And another thing. It would seem that the four tycoons sold their shares to foreigners. Yes, all four.

What if the purpose of the sale was not only to take profits but to load up on the US dollar too???

So far, actions do speak louder than words.