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 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 Posted its Largest Weekly Plunge of 3.53% in 2024: Why the Incredible Silence on the Influence of the June 17th Ayungin Shoal Incident?

Journalists cannot serve two masters. To the extent that they take on the task of suppressing information or biting their tongue for the sake of some political agenda, they are betraying the trust of the public and corrupting their own profession—Thomas Sowell

PSEi 30 Posted its Largest Weekly Plunge of 3.53% in 2024: Why the Incredible Silence on the Influence of the June 17th Ayungin Shoal Incident?

Why has the June 17th Ayungin Shoal Incident been absent from all media narratives on the stock market? Is censorship making a comeback?

Here is a list of news articles carrying Friday’s selloff at the Philippine Stock Exchange:

Inquirer.net, June 22, 2024: A weaker peso and strong foreign selling pushed the local bourse over its steepest drop of the year so far on Friday, with the benchmark index touching the 6,100 level for the first time in seven months. The Philippine Stock Exchange Index (PSEi) entered an eight-session losing streak on the last trading day of the week, falling by 2.93 percent, or 186.08 points, to close at 6,158.48…Philstocks Financial Inc. research analyst Claire Alviar noted that the market’s negative performance was due to strong net foreign selling, recording a net outflow of P1.34 billion…The local bourse has been falling in recent weeks, mostly due to the Bangko Sentral ng Pilipinas hinting at fewer interest rate cuts this year, which would mirror the move of the US Federal Reserve.

Philstar.net, June 22, 204: The stock market plunged to its lowest level this year as the peso fell to nearly 20-month low against the dollar. The benchmark Philippine Stock Exchange index (PSEi) lost for the eighth consecutive session, plummeting by 2.93 percent or 186.08 points to end at 6,158.48. This was the PSEi’s lowest level in over seven months or since hitting 6,110.88 in Nov. 15, 2023.

Manila Times, June 22, 2024: THE peso and the stock market ended the week on a sour note with both hitting multi-month lows amid a continued lack of positive catalysts. Analysts said that both the currency and financial markets had taken their cues from each other and that sentiment also remained negative amid continued dollar strength and a tech sell-off on Wall Street.

PNA, June 21, 2024: The local stock market ended the last trading day of the week in the negative territory due to net foreign selling, while the peso closed almost flat. The Philippine Stock Exchange index (PSEi) dropped 186.08 points to 6,158.48, while the broader All Shares also fell 65.11 points to 3,375.20. "The local bourse dropped by 186.08 points (2.93%) to 6,158.48 due to strong net foreign selling, recording a net outflow of P1.34 billion. The market’s new level is its lowest this year and marks its 8th straight day of decline. Additionally, the weakness of the peso against the US dollar continued to weigh on sentiment," Philstock Financials, Inc. research associate Claire Alviar said.

The three wise monkeys: "see no evil, hear no evil, speak no evil"

Isn’t it surprising that there’s NO mention of the escalating West Philippine Sea conflict in media coverage of stocks and the peso? 

Does the rising risk of a full-blown conflict hold any implications for the local financial markets?

Could the chaos — including the death, injury, disability, and destruction of private and public property — even lead to a stock market rally?

It’s incredible to observe that after the media passionately highlighted the knife-toting, boat-ramming, and boat-boarding incident by the Chinese Coast Guard at Ayungin Shoal on June 17, Philippine authorities backpedaled from calling it an "armed attack" that could have triggered the Mutual Defense Treaty (MDT) with the US government, potentially escalating into World War 3.

And yet, the astonishing code of silence by the establishment on its economic and financial impact!

However, foreign investors seem to have taken a different page from local media.

Down by 3.53%, the PSEi 30 suffered its largest weekly decline in 2024, with 83% of this week's deficit attributed to Friday's 2.93% plunge.

Figure 1

This selloff was aggravated by a substantial 1.26% pre-closing dump. (figure 1, topmost pane) 

Friday's meltdown saw a significant outflow of foreign funds, with net selling reaching Php 1.34 billion that represented 48.83% of the week's total outflows. (Figure 1, middle graph)

Foreign money has been selling the PSE in the last 12 of the 13 weeks.

Figure 2

Yet this week's selloff affected most of the 10 largest heavyweights, with the top 5 market caps continuing to decline. (Figure 1, lowest graph) (Figure 2, upper window) 

Could this be the law of mean reversion in motion?

The selloff can hardly be attributed to global developments, as the PSEi 30 suffered the largest weekly deficit among Asian-Pacific stocks. (Figure 2, lower diagram)

Could the weak peso be the culprit?

As earlier noted, the peso's frailty is a long-term trend. Why should concerns over a USDPHP breakout suddenly become an immediate threat to foreign investors?

Moreover, why would foreign funds rush for the exit when the region was experiencing a "fear of missing out" (FOMO) mood?   Eleven of the 19 national indices closed higher, with an average return of 0.44%, while four national benchmarks hit fresh record highs.

In addition to imbalances from market concentration plaguing the PSEi 30, sluggish local volume exacerbated its downside volatility due to panic selling.

Figure 3

Despite a significant boost from cross trades by institutional brokers, the five-month trading volume hit a four-year low, further reinforcing its long-term downtrend. (Figure 3, upper graph)

Once again, dwindling trading volumes increase the risk of a market crash.

Though oversold from Friday’s plunge, which could see a bounce this week, the latest breakdown of the PSEi 30 makes it vulnerable to testing recent lows (5,960 October 27, 2023 and 5,740 September 30, 2022). (Figure 3, lowest chart)

Lastly, media narratives typically focus on either post hoc or availability bias when attributing recently concluded events, but why the blackout on the June 17th Ayungin Shoal incident?

Bottom line: Are authorities assuming that shielding the public from the escalating risk of war will somehow keep the economy and financial markets afloat?

Is censorship making a comeback?