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

 

2023 PSE Stock Market Accounts Hit a Record 1.9 million as Active Accounts Fall to All-Time Lows, BSP Chief on Foreign Money "I Do Not Know Why They Do Not Like Us"

 

Statistical analysis without establishing the meaning of a particular economic activity cannot tell us what is going on in the world of human beings. All the statistical analysis can do is to describe things; it cannot explain, however, why people are doing what they are doing. Without the knowledge that human actions are purposeful, it is not possible to make sense out of historical data—Dr Frank Shostak 

In this issue

2023 PSE Stock Market Accounts Hit a Record 1.9 million as Active Accounts Fall to All-Time Lows, BSP Chief on Foreign Money "I Do Not Know Why They Do Not Like Us"

I. PSE’s Stock Market Accounts Hit a Record 1.9 million

II. Differentiating Growth Rate from a Growth Trend, The Digitalization of the Philippine Stock Market 

III. It is the Active Accounts that Matter: Reaching an All-Time Low!

IV. PSEi 30’s Bear Market: Reduced Participation Rate, and Diminishing Volume; Age Distribution of Participants Suggests a Worrisome Trend!

V. Stock Market Doldrums Brought About by Savings Drought Manifested in Banking Data and Market Manipulation

VI. 2024 5-Month Volume and Market Breadth Exhibits Oversold Conditions

VII. Symptoms of Market Distortions and Inefficiencies: An Examination of Market Dominance by the Top 10 Brokers and PSEi 30's Top 5 Issues

VIII. BSP Chief Remolona on Foreign Money: "I Do Not Know Why They Do Not Like Us"

2023 PSE Stock Market Accounts Hit a Record 1.9 million as Active Accounts Fall to All-Time Lows, BSP Chief on Foreign Money "I Do Not Know Why They Do Not Like Us" 

The PSE registered an 11.3% growth in stock market accounts in 2023, but active accounts fell to an all-time low, supported by a dearth in volume. The BSP Chief questions why foreign money continues to elude the Philippines, highlighting the challenge facing local investors. 

I. PSE’s Stock Market Accounts Hit a Record 1.9 million 

Inquirer.net, May 29, 2024: Stock market accounts rose 11.3 percent to 1.906 million in 2023  from 1.7 million in the previous year, according to the Philippine Stock Exchange’s (PSE) annual Stock Market Investor Profile report. The growth was mainly due to new accounts opened through the GStocksPH platform, which also pushed the share of online accounts to 80 percent of total stock market accounts. Online accounts stood at 1,525,768 as of end-2023, up 21.2 percent or 266,861 accounts.

Figure 1

The headlines provide the good news: a surge in new stock market accounts. This surge was highlighted by PSE's infographics, which emphasized "growth." (Figure 1, topmost table) 

We'll take it further.

In the context of peso nominal gains, the 193,285 increase in 2023 marked the largest after 2021 and 2018. (Figure 1, middle chart)

The upsurge in new accounts has increased the stock market's penetration level to a record 1.7% of the population (using GDP calculations). (Figure 1, lowest graph)

Or, this represents an unprecedented 2.44% of the population over 15 years old and 3.7% of the labor force (PSA labor survey).

However, there's a catch. If so, why has the PSE's volume been falling?

II. Differentiating Growth Rate from a Growth Trend, The Digitalization of the Philippine Stock Market

Let's dig deeper to understand the underlying factors.

The reason is that new accounts are only one part of the equation.

Figure 2 

First, the headlines only reveal the growth rate, but they don't reveal the growth trend. The fact is that since peaking in 2018, the growth trend has been on a decline. (Figure 2, topmost chart) 

2023 could be seen as a countercyclical bounce, possibly driven by a shift to a mobile application trading platform similar to the US Robinhood Markets. 

As evidence of the marked transition towards a digital economy, the share of online trading hit an unmatched 80% of the total. This growth was accompanied by a 21.2% YoY increase. (Figure 2, middle image)

In contrast, traditional brick-and-mortar accounts saw a significant decline in 2023. This decline was marked by a contraction of -16.2% YoY and a share drop from 26.5% to 19.95%. (Figure 2, lowest graph)

This shift towards online trading is reflective of the industry's broader trend towards digitalization, which has been driving the growth of new accounts.

As we explore this trend further, we will delve into its implications for the sell-side industry's future.

III. It is the Active Accounts that Matter: Reaching an All-Time Low!

Returning to the paradox of the record new accounts amidst declining volume, a more pertinent metric is "active accounts."

Figure 3

Consider this: while the total number of active accounts represents 17.6%, online accounts make up 19.3%. This means that in total, there are only 335,459 active accounts—a historic low! (Figure 3, topmost table and middle window)

Interestingly, the retail segment experienced a lesser decline compared to institutional accounts. Retail active accounts dropped from 20.1% to 17.6% of the total, while institutional accounts plummeted from 23.7% to 20.5%.  (Figure 3, lowest graph)

In nominal figures, retail accounts decreased by 2.2%, while institutional accounts saw a significant dive of 22.53% 

The PSE numbers didn’t specify whether the new accounts were included in this year’s active accounts or if the active accounts represented last year’s total numbers.

However, if it's the former case, then nearly 58% of the new accounts are part of the active ones! If this holds true, will they, like their predecessors, fade soon?

IV. PSEi 30’s Bear Market: Reduced Participation Rate, and Diminishing Volume; Age Distribution of Participants Suggests a Worrisome Trend!

Figure 4

Like day follows night, the declining participation rate has characterized the PSEi 30’s bear market in disguise. 

Since its climax in 2017, the PSEi 30's (end of year) downtrend has resonated with the corrosion of the growth of total accounts. 2023’s 11.3% marked the second-lowest YoY growth rate since 2017.  Notably, this growth rate was achieved from a very low base. (Figure 4, topmost chart) 

The decline in participation rates can also be attributed to the poor returns from investing in the PSE, as many investors became "long only," and wary of taking risks after experiencing prolonged losses. (Figure 4, middle pane) 

Moreover, diminishing volume has accompanied the PSEi’s 30 bear market. (Figure 4, lowest diagram)

Figure 5

Interestingly, among age groups, while millennials suffered the most decline in participation, followed by Gen X, it was the seniors who provided the most growth in total accounts. Senior accounts soared from 10.8% to 14.8%!  (Figure 5, topmost table)

That online accounts dominated the total was also manifested in the age distribution. The boomers, who in the past years (except 2021) have shied away from online accounts, became the largest growth sector, surging from 5% to 10.9%. (Figure 5, second to the highest table)

On the other hand, millennials, who composed the bulk of the age grouping, endured a substantial contraction, from 55.7% to 49%! Part of Gen Z helped in the increase from 20.8% to 21.5%.

This reveals a lot about income and savings conditions. It likely exposes that the 30-44 age grouping must have endured most from the decaying conditions in real income and savings, hence their participation pullback in the PSE.

It also manifests that under the current high inflation environment, the age group with the most savings, the seniors or boomers, were driven to scour for yields in the stock market. They braved the challenges of learning to use digital platforms for trading to gamble.

The thing is, a savings drought, which brought about the PSEi 30’s bear market, has been manifested by the decaying gross volume or turnover, which reverberated with the decrease in the participation rate. 

Needless to say, a restoration of savings should anchor a comeback of a healthy bull market—similar to the pre-2013 era. Without it, everything else represents a juvenile belief in unicorns, the tooth fairy, or castles in the sky or false optimism and unsustainable trends.

V. Stock Market Doldrums Brought About by Savings Drought Manifested in Banking Data and Market Manipulation

Symptoms of the deterioration of savings have similarly been manifested in the banking system. The 10-year decay of the bank’s deposit liabilities or cash-to-deposit ratio reveals a lot about inflation and malinvestments via asset bubbles ravaging savings. (Figure 5, second to the lowest and lowest charts)

Figure 6

The Warren Buffett Indicator—market cap divided by the GDP—also exhibits this deviation. The PSEi 30’s declining ratio demonstrates the bear market in motion. (Figure 6, topmost graph) 

Additionally, since debt has anchored private and public activities, it bloats the GDP. Therefore, the overstated GDP performance inflates this market cap-to-GDP ratio.   Furthermore, the rising Consumer Price Index (CPI) has coincided with the decline of the ratio, indicating that inflation has been a major hindrance (a menace) to the financial economy. 

That’s not all.

Massive "marking the close" pumps and dumps have contributed to the intensifying mispricing of the local stock market. Basic economics tell us that price controls lead to either shortages or gluts. The same holds true for the stock market. 

Friday’s massive 1% "mark the close" pump came about from the top 10 brokers who were responsible for 80% of the transactions. End session pumps and dumps have become a common feature in the PSEi 30. (Figure 6, second to the highest charts)

The essence of the stock market is its pricing mechanism in the titles to capital. 

The gaming of the index, thereby, percolates or radiates to the economy via misallocations of capital brought about by these pricing distortions. It exacerbates malinvestments from monetary policies and other forms of interventions—which of course, would be revealed over time. 

At the very least, all these contribute to the erosion of savings. 

VI. 2024 5-Month Volume and Market Breadth Exhibits Oversold Conditions 

Many have come to the conclusion that the PSE’s turnover has been improving. 

That may be partially true. While May’s volume jumped 25.6% YoY—helped by the Month-end marking the close pump—following April’s 71.12% surge, the 5-month aggregate turnover declined 6.2% from last year. (Figure 6, second to the lowest image) 

The two-month surge has barely offset the declines of the early months. 

Sure, market breadth has exhibited signs of improvement. The 2024 5-month advance-decline spread marks the lowest since 2019. (Figure 6, lowest diagram)

In a nutshell, despite the PSE’s cheerleading via the headline numbers, the depressed turnover, and low participation rates backed by improving partial market internals exhibit oversold conditions. 

VII. Symptoms of Market Distortions and Inefficiencies: An Examination of Market Dominance by the Top 10 Brokers and PSEi 30's Top 5 Issues"

Still, the current environment has been a product of loose financial conditions, which means more pressure on the PSE should conditions tighten. 

However, the ever-dithering BSP would likely tolerate or gamble with "higher for longer" inflation than tighten monetary conditions due to unsustainable debt conditions. 

Furthermore, the sluggish turnover also implies increasing stress on the sell-side (brokerage) industry. According to the PSE, there are 122 trading participants, 37 of which have online platforms. 

But here's the rub: the top 10 brokers capture a vast majority of daily transactions. Most of them represent institutional brokers—possibly accounts of banks and other financial institutions.

Figure 7

Last week, the average soared to 63.4%, mainly due to Friday’s mark-the-close pump, where the top 10 brokers accounted for a staggering 80% of the Php 22 billion trade! (Figure 7, topmost visual) 

The limited distribution of transactions to a select number of brokers highlights the extent of concentration of activities or "market dominance" in the stock market, which is equally reflected in the dispersion of weightings in the PSEI 30’s free-float market capitalization. 

The aggregate free-float cap of the top 5 issues hit a record 51.92% last April 19th! (Figure 7, second to the highest image) 

These phenomena are all manifestations of distortions: market inefficiencies, imbalances and irregularities. 

As an aside, financial services accounted for 15% share of the retail accounts in 2023. This suggests that a substantial share of direct retail transactions involves those who sell "financial services" (buy and sell side), potentially leading to many principal-agent problems. 

By inference, our guess is that many traditional retail brokers are on the threshold of survival. 

Ironically, the PSE brags about the headline numbers of stock market accounts, while there appear to be ZERO takers of its short-selling program since its inception. 

Also, since the start of its Volume Weighted Average Price (VWAP) trading program last March 1, total transactions amounted to only Php 415.435 million. 

These new programs have had little or no impact on the sell-side industry. 

Yet, the BSP and PSE’s policies will continue to haunt savers while applying pressure to the sell-side industry. 

In my humble opinion, the PSE aims to consolidate the brokerage industry by reducing the number of brokers (or competition) and favoring a few larger players—to increase its control. 

VIII. BSP Chief Remolona on Foreign Money: "I Do Not Know Why They Do Not Like Us" 

In a surprising twist, the BSP chief expressed concerns about the lack of depth in the PSE, citing the limited foreign participation as a key factor contributing to its lack of international recognition. (bold mine) 

And finally, we have our missing portfolio flows. We used to fear portfolio flows because we saw them as hot money. They come in and leave at the first sign of trouble.

But these days, they are not so scary. In the first place, they are so negligible these days; they can come in and out, and it will not matter. 

But the big thing is the game has changed; the intent is not into active investment anymore; it is in passive investment. Passive means you buy the index. At least at the core of your portfolio, you need an index. Maybe you can play around on the sides of your portfolio, but the core has to be an index. 

Huge trillions of dollars are now flowing into the major equity indices, global equity indices, and the major primary bond indices. I think we are in a few indices. We talked to Vanguard, and they said we are about 0.1 percent of their bond index. 

But we are not in any major equity indices, BlackRock or State Street. We do not know why; people say it is our withholding taxes, but we are not sure what is going on. 

Bakit hindi tayo kasali? The smaller markets are in these indices. Colombia is in that index. Etsepuwera tayo, hindi tayo kasali. I do not know why they do not like us.​ (Remolina, 2024) 

This lack of understanding (incredible cluelessness) and the tendency to blame foreign investors for the country's financial issues is striking. 

Yet, as an old Wall Street Maxim goes, "Money goes where it is treated best." 

The Philippine authorities and private regulators should reflect or self-examine on whether they have been creating an attractive environment for investors or if they have been providing money with a red-carpet treatment or not.  The Philippine Stock Exchange is a monopoly with self-regulatory powers. 

The questions to ask: has the BSP’s inflation targeting regime, a "trickle-down policy, " successfully diffused to build up savings for the average Pedro and Maria? 

Or has it supported the debt-financed Keynesian "build and they will come" policy framework benefiting the elites and the government while consuming the savings of the general populace through the economic maladjustments as evidenced by the record savings-investment gapsavings-investment gap? 

In essence, have their policies been supportive of local savers and conducive to the industry? 

The crux: If they can’t draw local savers into the capital markets (bonds and stocks), why would foreigners follow? 

Foreign portfolio flows into the Philippines have declined significantly since 2013. (Figure 7, second to the lowest graph) 

The Philippine bond market is one of the smallest in Asia, which is likely why foreign flows have been limited. (Figure 7, lowest chart) 

Then why blame foreigners for "not liking" the Philippines?

____

References

Dr Frank Shostak, Can Data by Itself Inform Us about the Real World? May 27, 2024, Mises.org

Philippine Stock Exchange, STOCK MARKET INVESTOR PROFILE 2023, May 2024, PSE.com.ph

Eli M Remolona: The challenges we face at Bangko Sentral ng Pilipinas, Speech by Mr Eli M Remolona, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the central bank of the Philippines), at the General Membership Meeting of the Financial Executives Institute of the Philippines, Makati City, 6 March 2024. April 16, 2024, Bank for the International Settlements

 

 

The PSE Chief Says the Lack of Retail Investors is About the Dearth of Public Interest; Our Different View

The PSE Chief Says the Lack of Retail Investors is About the Dearth of Public Interest; Our Different View

Is the stock market about public interest or about savings and credit? 

 

In a recent forum, the Businessworld quoted the PSE honcho: "In January 2021, we were seeing 10-12 billion in trading volume. We know the retail investors are there. It’s a matter of getting their interest." 

 

The statement is an admission of the current lack of retail participation.  

 

It also represents selective perception.   

 

Yes, the PSE had Php 11-12 billion back then, but under what circumstances? 

 

Wasn't this the period when BSP announced a massive $2 trillion in liquidity injections?   

 

Where did the tsunami of liquidity flow into?   

 

Did these not boost the bank's and the real estate sector's cash positions?   

 

Figure 1 

 

Who else benefited from it?  

 

Did the PSE and Philippine Treasuries not profit from the BSP's bailout? 

 

Figure 2 

 

The BSP's historic monetization of debt via asset expansion coincided with the PSE's volume boom referred to by the quote.   

 

It also forced yields to an unprecedented low (depicted by 10-year PDS yields). 

 

Has the public been equipped with a "Santa Claus fund" or an "inexhaustible fund that can be squeezed forever" to borrow from the great Ludwig von Mises? 

 

Yet why have the armies of highly paid economic and financial mainstream experts not come to grips with this to explain to the PSE? 

 

Do they think that money from thin air is a free lunch or has neutral effects? 

 

Amazing.  

 

The latest rebound is another episode of the lack of retail participation. 

Figure 3 

 

The Philippine PSEi 30 increased by 5.2% in four straight weeks on the backdrop of:  

-low and decaying main board peso volume 

-The PSE posted 3 of 4 weeks of negative breadth (decliners leading advancers) 

-PSEi 30 had a positive breadth this week (November 24): 20 of 30 issues up.  

 

But gains were concentrated mainly on the big caps—the top 10 market cap delivered an average of 2%, led by ICT, SMPH and URC.    

Figure 4 

How does one arouse the interest of the public? 

 

By permitting or keeping a closed eye on the deliberate distortion of the market pricing system, which would send false economic signals and lead to misallocation of resources and the consumption of savings?   

 

It was another week of the "stock market with the Philippine characteristics." 

 

The dominance of organized and coordinated pumping contributed 75% of the week's .93% gains.  Afternoon delight (post-lunch break) pumps had also been prominent.  

 

Naturally, since the biggest market cap issues were the focal point of such pumps, it reinforced the rising share of the top 5 heavyweights (SM, SMPH, BDO, BPI and ICT), which accounted for 47% of the index (as of November 24th). 

 

Let us close this short discussion with a quote from the late Austrian-American economist Fritz Machlup: 

 

The process of transferring savings to the producers may be performed through the borrowing and lending facilities of the savings banks, but mainly through the capital market which centres around the securities market.  

 

Capital Markets (Fixed Income & Stock Market) 101. 

___ 

Reference: 

 

Fritz Machlup, THE STOCK MARKET, CREDIT AND CAPITAL FORMATION p.27 WILLIAM HODGE AND COMPANY, LIMITED 1940 Mises.org