How the Philippine Treasuries, the Peso and the Philippine Stock Exchange Performed in 2023

The past is a source of knowledge, and the future is a source of hope. Love of the past implies faith in the future—Stephen Ambrose 

 

How the Philippine Treasuries, the Peso and the Philippine Stock Exchange Performed in 2023 

 

A snapshot of how Philippine assets performed in 2023. 

 

I.  As Inflation Fell, Philippines Bonds Rallied in 2023 

 

The zeitgeist of 2023: The countercyclical slowdown in inflation. 

 

Philippine statistical inflation peaked in February 2018 at 8.6% and has hurtled lower through the yearend.   

 

The Philippines followed global inflation down. 

 

Against this global backdrop, the US dollar fell (2%), and domestic and world fixed-income and equity markets rallied hard.  

 

Figure 1 

As a proxy, yields of ASEAN 10-year bonds were generally down in 2023. (Figure 1, topmost chart) 

 

Despite a significant drop in yields in the 4Q, Philippine T-bills yields rose YoY in 2023 as notes and bonds fell, flattening the Treasury curve. (Figure 1, middle and lower windows) 

 

Aside from the CPI, Treasury markets have indicated a slowdown in the GDP. 

 

II.  The Philippine Peso Rebounded by .7% in 2023

Figure 2 

 

Along with the CPI and lower bond yields, the Philippine peso reversed earlier losses and rebounded.  (Figure 2, topmost graph) 

 

The USD-PHP closed the year down by .7% to cut the two-year streak of losses.  (Figure 2, middle window) 

 

In any case, the returns of the USD-PHP appear tilted to the upside, supported by "twin deficits" and its long-term trend. (Figure 2, lowest chart)   

 

Though the mainstream associates the CPI with the performance of the USD-PHP, its 53-year uptrend has occurred even during the disinflationary era.  

 

Nonetheless, the annualized CPI seems to be forging a rounded bottom, which should support the USD-PHP in 2024. 

 

III.  2023: PSEi 30 Fell by 1.8% on Falling Volume, Continuing Trend of Diminishing Returns  

 

Now to the Philippine Stock Exchange.  

Figure 3  

As noted above, the PSEi 30 staged a furious rally in Q4, mainly from November and December's 4.2% and 3.6%, to settle with a 2.04% gain. (Figure 3, topmost chart) 

 

The thing is, this rally was barely enough to reverse the early-year loss.  The PSEi 30 generated nominal and real (inflation-adjusted) returns of -1.8% and -7.8%, respectively.  (Figure 3, middle and lowest graph)  

Figure 4  

The PSEi 30 has endured diminishing returns since 2009 (or 1993), regardless of the CPI's performance. (Figure 4, topmost window) 

 

The PSEi 30's continuing dismal performance is a function of capital and savings consumption, manifested by the 17.6% decrease in gross peso volume (including special block sales).  (Figure 4, middle graph) 

 

Even with the bulls in charge, the PSEi 30 was one of Asia's laggards in 2023.  

 

13 of 19 bourses were up with an average return of 11.9%.  Pakistan, Laos, and Japan led the winners.  Meanwhile, Thailand, Hong Kong, and China were the top (minority) decliners. (Figure 4, lowest chart) 

IV. Financials led by BDO Cushioned the Bear Market; The January Effect 

Figure 5 

By sector, Financials, which returned with a +5.7%, was the rose among the thorns.   As all other sectoral indices endured deficits, financials, primarily led by BDO (+23.5%), provided a cushion to the PSEi 30. (Figure 5, topmost graph) 

 

By members, one-third of the elite firms defied the bear market forces. Three of them carved record highs in December, in particular, CNPF, ICT, and MER.  But the average change was -3.8%. (Figure 5, middle window) 

 

Finally, though January tends to be favorable for the PSE, via the "January effect," annual returns aren't secured.  January 2023 finished up 3.45% yet closed the year down -1.77%.   January's had positive returns in eight of the last 11 years but had negative annual returns in seven. (Figure 5, lowest chart) 

 

While past performance does not guarantee future results, it could provide a useful roadmap to the future.  

Will Q4's Seasonal Strength Prevail? Is the Philippine PSE a Buy?

 

There are two kinds of statistics, the kind you look up and the kind you make up—Rex Stout 

Will Q4's Seasonal Strength Prevail?  Is the Philippine PSE a buy? 

 

How the PSEi 30’s December and its Q4 performance stacks up against different time frames, and why "past performance is not a guarantee of future outcomes." 

 

I. Will Q4 favor a buy on the PSE?  

Figure 1 

 

As the last quarter of 2023 approaches, this chart (or its slight variation) will likely spread as part of the mainstream's marketing theme. (Figure 1) 

 

The essence is that because the Q4 produced positive returns historically, it is time to "buy, buy, buy the PSE!" 

 

Since 1985, December produced the most monthly returns (averaged) for the PSEi 30!  January was next.  There are "many ways to skin a cat," as they say, but let us use simple averages here. 

 

Moreover, the three months of Q4 also generated unanimous positive returns.  

 

By simple inference, it is time to buy! 

 

II. The Base Effect Rules: December’s Shrinking Returns 

 

But there’s a catch. Changing references or picking base points, which represent the "base effects," alters the results.  

 

Figure 2 

 

Given the varying "reference starting points" of 2000, 2013, and 2018, December's average returns have changed dramatically.  Returns have even shrunk! (Figure 2, upper graph) 

 

Nota Bene: I used 2013 for two reasons:  First, it marks the tenth year, and next, it represents the peak of the PSEi 30 in USD and volume.  2018 signifies the climax of the nominal PSEi 30. 2000 represents the new millennium. 

 

So as the time narrowed, October generated the most returns in the ten-year and 5-year framework.  

 

Finally, monthly returns of 2023 have barely resonated with the 1985 average.  (Figure 2, lower chart) 

 

For instance, the average change in the eight months of August was -.72%, while the average 8-month returns of 37 years was 1.1%.  Also, four of the 8-months saw a deviation in direction, e.g., May was positive in 1985 but negative in 2023. 

 

III. The Story Behind the Big Q4 Returns of 2020 and 2021 

Then there's more.  

Figure 3 

 

The PSEi 30 generated two of its best Q4 performance since 2007 in 2020 (21.8%) and 2022 (14.4%).  (Figure 3, upper chart) 

 

Ironically, the annual change for the same years had been negative, viz., 8.6% and 7.8%.   

 

That said, the enormous Q4 returns signified a recoil to an earlier crash.  Does the PSEi 30 have the same conditions today? 

 

More to this point.   

 

Using the 23, 10, and 5-year frameworks, true enough, returns of Q4 tended to be strong, but annual returns have also been in a downtrend. (Figure 3, lower graph) 

This data reinforces the dominant weak pre-Q4 activities. 

 

IV. Structural Decay in Savings Equals Low Volume: 8-Month Turnover Dropped to 11-12 Year Low! 

Figure 4 

 

A better clue is from the 8-month aggregate volume compared with the PSEi returns and the index level. (Figure 4) 

 

Cascading volume or diminishing stock market liquidity has extrapolated into a bear market or deteriorating returns. The 8-month volume fell to its lowest level since 2011 or 2012—an 11 or 12-year low! 

 

Or, the structural decay in savings and capital has led to diminishing returns in the PSE. 

 

V. Dead Cat’s Bounce Ahead? 

 

Can the PSEi 30 bounce from here?   Sure, anything can happen over the short term.   

 

The BSP may conduct any, a combination of, or all of the following:  

a) cut rates,  

b) restart its QE,  

c) reduce Reserve Requirements (RRR), and  

d) implicitly direct the financial industry to undertake support on the stock market (like China), which it will finance or help facilitate.  

 

Will the recently funded Maharlika Investment Funds or the local version of the Sovereign Wealth Funds (SWF)  be used to pump the market? 

 

...and/or because global central banks may decide to suddenly "ease," global equity markets stage a massive rally. 

 

Besides, index managers have dedicatedly used the low-volume environment as an opportunity to support or prop the PSEi 30 through end-session pumps. 

 

In any case, unless political-economic conditions favor a rebuild of savings, none of these will reignite a bull market.  Instead, distortions from interventions will compound the current predicament. 

 

VI. The Lesson in Quotes 

 

Three quotes to end this terse subject: 

 

1) Ronald Coase:  "If you torture the data long enough, it will confess to anything."    

 

2) Ludwig von Mises: "There are, in the field of economics, no constant relations, and consequently no measurement is possible...Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions" 

 

3) Therefore..."Past performance is not a guarantee of future outcomes." 

 

Is the PSE a buy?   

 

That would be like "picking up pennies in front of a steamroller." 

 

Caveat emptor. 

"...Get-rich-schemes just don’t work. If they did, then everyone on the face of the earth would be a millionaire. This holds true for stock market dealings as it does for any other form of business activity. Don’t misunderstand me. It is possible to make money – and a great deal of money – in the stock market. But it can’t be done overnight or by haphazard buying and selling. Thus big profits go to the intelligent, careful and patient investor, not to the reckless and overeager speculator—J. Paul Getty