The ultimate result of shielding men from the effects of folly is to fill the world with fools—Herbert Spencer
In this issue
PSEi 30 6,700: Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue
I. PSEi 30 Bested ASEAN Peers; China’s Government Launches Massive Stock Market Rescue
II. PSEi 30’s Organized and Concentrated Pumps: Muted Volume and Selective Winners
III. Renewed Pumps on PSEi 30 Banks
IV. Concentrated Activities: Centralization of Broker Activities, Lack of Retail Participation
V. Foreign Inflows, Rising Yields of T-Bills, and a Flattening Treasury Curve
PSEi 30 6,700: Organized and Concentrated Pumps; China’s Launches Massive Stock Market Rescue
A slice-and-dice perspective of the Philippine PSEi 30's weekly 2.8% gains before the 2023 GDP announcement.
I. PSEi 30 Bested ASEAN Peers; China’s Government Launches Massive Stock Market Rescue
Figure 1
In the face of drastically loosening financial conditions, the Philippine PSEi 30 surged by 2.8% to reverse the 2.1% loss from the other week that stole the thunder of its ASEAN peers.
Notably, benchmark stocks of the Asian region were mixed—10 of 19 up with an average of .43%, mainly from the biggest winners. (Figure 1, upper graph). East Asian and Australasian bellwethers closed higher, while profit-taking pulled most ASEAN and South Asia indices lower.
Weekly advances in the national equity indices of Hong Kong (HSI +4.2%) and China (SSEC 2.8%) also led the advancers and buoyed the region's average returns. (Figure 1, lower charts)
A seemingly desperate Chinese government announced several substantial measures to stem the $6 trillion stock market rout, including a widening ban on short selling, bigger-than-expected RRR cuts, talks about a $278 billion stock market rescue package, targeted lending, easing of regulatory restrictions on home purchasing, and more coming.
However, from a five-year perspective, this week's rally in China and Hong Kong’s stocks emerged from substantial oversold conditions.
From our humble perspective, bailouts only kick the proverbial can down the road with nastier consequences. This band-aid approach barely deals with the issue of malinvestments and instead contributes to the erosion of savings.
II. PSEi 30’s Organized and Concentrated Pumps: Muted Volume and Selective Winners
Back home, although the PSEi 30 appears to be testing its resistance level, it's hardly a generalized speculative frenzy. This week's gains pushed YTD and November 2023 returns to 3.7% and 12.15% (as of January 26th).
The outperformance of the principal PSEi 30 seems to be a product of organized, coordinated, and concentrated pumping.
Aside from easing conditions, the PSEi 30's sugar high could signify a frontrunning of the pre-announcement of the 4Q and 2023 GDP on January 31st.
Figure 2
The PSEi 30 has been rising in the backdrop of declining volume.
This week, the average daily main board volume dropped 17.4% from Php 5.01 billion to Php 4.14 billion. (Figure 2, topmost chart)
Though the average daily gross volume jumped by 11.6% from Php 5.99 billion to Php 6.68 billion, special block sales comprised 38%. Cross trades have also bolstered the main board volume.
The primary winners were the largest market capitalization heavyweights.
And though 18 of 30 issues closed higher with one unchanged, five of the top 6 market cap issues delivered an average weekly return of 4.32%. (Figure 2, middle window)
In turn, the top 5 issues (SM, SMPH, BDO, BPI, and ICT) now command a 48.15% share of the PSEi 30. The top 10 has a 71% share. Briefly, these elite issues led the path to 6,700. (Figure 2, lowest graph)
Figure 3
As a result, the selective pumps have exacerbated the skewed distribution of market cap weighting. The weight distribution resembles and depicts the Power Law. (Figure 3 topmost graph)
SM's 6.32% spiked its market cap share to 14.61%, as well as the Sy Group's 33.35%. (Figure 3, middle pane)
The Sy Group's share of the main board's volume also increased to 24% from 19.8% a week ago. The Sy Group has been amassing buying interests from institutional entities since December 2023. (Figure 3, lowest pane)
III. Renewed Pumps on PSEi 30 Banks
The surging share of PSEi 30 banks via outsized weekly returns has also been a factor.
Figure 4
Banks' share of the PSEi has risen to 20.61% (as of January 26th), fast closing in on its record 20.75% last September 2023. (Figure 4, topmost graph)
Up by 5.2%, the financial index outperformed the other sectors. (Figure 4, middle window)
Thanks to the BSP's Php 2.2 trillion injections, subsidy on deposit liabilities via historic low rates, and the various relief measures, the trio’s bank (BDO, BPI, and MBT) share of the PSEi 30 surged by 62% from August 2020 through last week.
Notably, the bidding spree was limited to banks of the PSEi 30. Similar to 4Q 2022 until 2Q 2023, were the buyers the non-bank financials? The BSP has yet to report on the 3Q conditions of the Other Financial Corporation survey.
Essentially, the October-November trough coincided with the sharp drop in bank loans to the financial sector. Have banks reopened their lending spigot to their non-bank peers? (Figure 4, lowest chart)
IV. Concentrated Activities: Centralization of Broker Activities, Lack of Retail Participation
Broker activities also manifest the concentration of trading activities.
Figure 5
While the average daily share of the top 10 brokers fell from 65.2% to 57.9%, the elite (mainly institutional) brokers remain significant. (Figure 5, topmost window)
These elite firms are responsible for a chunk of cross-trades.
The remaining 113 or so brokers compete for the morsels.
It is not a surprise that end-session pumps or dumps have become a regular feature.
Despite the 12% surge of the PSEi 30 from 4Q 2023, the lack of participation of retail money remains apparent.
The average daily traded issues bounced while remaining on a downtrend. Or the increase in trading coverage comes with low volume. (Figure 5, middle graph)
On the other hand, decliners have led advancers for the last three weeks while the average daily trades continue to flounder. Incredible. (Figure 5, lowest chart; Figure 6, topmost chart)
Figure 6
Though there were minor improvements on the retail side, January's trades remained a game for the big boys—who have been trading among themselves.
V. Foreign Inflows, Rising Yields of T-Bills, and a Flattening Treasury Curve
The index managers got some help from foreigners.
Foreign money reported inflows of Php 793 million and Php 4.31 billion in 2024. (Figure 6, middle graph)
Global financial easing may have prompted some overseas funds—via carry trades—to chase returns here.
Ironically, despite the inflows, volume remains lackluster.
As a caveat, in a world of globalization, trades by offshore entities or direct and indirect affiliates of listed firms may be counted as foreign money.
The PSEi 30s' recent ramp tells a story of stage-managed trading activities (organized, coordinated, selective, and concentrated), which is hardly a sign of a bull market.
Rising T-bill yields, amidst a flattening curve, also hardly translate to a sustained Risk-ON scenario. Instead, it lays the groundwork for negative surprises. (Figure 6, lowest chart)
