PhiSYx/PSYei 30 Breaks 9,000; SM Delivers Over 90% of the Day’s Gains!!!!

For the establishment, the end justifies the means.

The breakthrough attained today was engineered and were consequences of immense serial end-session pumps

The Philippine Stock Exchange celebrated:

The Philippine Stock Exchange index (PSEi) broke past the 9,000 mark and finished Friday's trading session at a record high of 9,041.20, up by 42.03 points or 0.5 percent from yesterday’s close.

"While the PSEi was unsuccessful in its two attempts earlier this week to break the 9,000 level, today the index finally penetrated this important mark. The journey to record territory reflects the high confidence investors have in our market," said PSE President and CEO Ramon S. Monzon.

Since the start of the year, the PSEi has broken through new record highs for a total of 8 times.

"We are hopeful that the market's level will be sustained on the back of solid macroeconomic fundamentals and on expectations of upbeat corporate earnings from our listed companies. Our market is likewise in sync with regional bourses that have reached record highs this month," Mr. Monzon added.

Year-to-date, the PSEi has gained 5.6 percent.

The PhSYx was “in sync with regional bourses that have reached record highs this month”. Therefore, the breakout in regional bourses must have been due to “solid macroeconomic fundamentals” and on expectations of upbeat corporate earnings” as well.

Begging the question aside, let me offer another perspective whereby the index has “finally penetrated this important mark”

 

SM closed the day up an astounding 3.64% and with a market cap share of 14.01%

Relative to the PSYEi 30 pie, SM’s performance for the day contributed to a shocking 90%+ of the day’s gains!

Seen in a different light, the string of records has hardly been about macro drivels but about inflating the index mostly through the SY group of companies

 

Bloomberg provides an invaluable service of showing the intraday performance of the PSEi (PSYEi) 30, SM (top) and SMPH (bottom)

With the headline index down throughout the morning session, the afternoon delight came into action right after lunch break.

The initial pump directed at SMPH succeeded to boost the PSEi but was short-lived due to sustained selling pressures. As an aside, SMPH carried a market cap weight of 8.27% at the close of the day. 

So operations shifted tactically from SMPH to SM.

SM and the PHSYX caught fire about 10 to 15 minutes before the market intervention phase. A .8% marking-the-close push sealed SM’s stunning 3.64% advance for the day!

However, because SMPH was sold down by .643% simultaneously, this partly offset SM’s end-session inflation. Hence, the mark-the-close effect on the headline index was partly sanitized

Nevertheless, contrary to popular wisdom, the Phisix is not about the price and valuations 30 largest listed firms representing different industries.

Instead, the headline index IS about the SY group of companies, which presently controls nearly 30% (29.46%) of the market cap weighted index!

Mainly because of the SY group, the top 5 issues including Ayala Land and Ayala Corp has now corraled 44% of the index!

Oh, by the way, the market-weighted PER based on 2016 eps has zoomed to 29! That’s well beyond 1997 peak!

Yes for them prices can only go higher. And they (whoever they are) made sure of it.

The end justifies the means.

Malaysia Raised Interest Rates, BSP Next? As South Korean Stocks Stormed to Record Highs, 4Q GDP Shrunk!

Malaysia’s central bank, the Bank Negara Malaysia (BNM) raised policy rates for the first time since 2014. The reason provided (Bloomberg): “The government is forecasting growth of as much as 5.5 percent this year, buoyed by a global trade recovery and rising domestic spending. Inflation pressures are also building because of rising fuel and food costs.”

The BNM may have been pressured to hike rates intoned an international media outfit (Bloomberg): “Not since 2010 has Malaysia’s central bank faced as many calls from economists to raise interest rates as it does now.”

And Malaysia’s move has been perceived as the possible “breaking the ice” of an anticipated chain of interest rate increases for Southeast Asia region (Channel News Asia).  

“Malaysia is the first in Southeast Asia to raise its key rate in years, and the first Asian nation to hike them in 2018, during which many analysts expect the Federal Reserve is increase U.S. rates multiple times, as in 2017.

“South Korea raised its rates on Nov 30. The Philippines, which last hiked in September 2014, is expected by many economists to have at least one this year to cool its fast-growing economy.

Philippine 10-year bonds have risen far more than its Malaysian counterpart, even as inflation rates for both nations have almost been at the same level.

Though both countries have seen M2 climbing (as of October), the Philippines (+11.8%) has outpaced Malaysia (+5.25%). The bond markets have ostensibly been pricing higher long-term inflation for the Philippines than Malaysia.

Interestingly, Malaysia has a staggering household debt-to-GDP of 84.6% (3Q 2017) down from 88.4% in 2016.

Malaysia’s domestic credit-to-GDP was at a whopping 124% in 2016 as against the Philippines at 63.6% as of Q2 2017, according to BSP Governor Nestor Espenilla in a recent speech. Remember, only a few people have access to the formal banking system in the Philippines.

Moreover, at the end of 2012, Philippine credit-to-GDP was at 50.4%.  The current credit-to-GDP has now surpassed the 1997 high of 62.22% (See Phisix Breaks 6,900 as Inflation Risk Becomes a HOT Political Issue! July 6, 2014). Historically low interest rates have accommodated the current massive debt buildup.

As I previously pointed out*, the Malaysian government has imposed a targeted ban on property development in response to the prevailing glut.

*See Phisix 8,560: 7 Factors Behind 14th Record High That You Won’t Hear From the Mainstream January 2, 2018

That said, the property ban and the interest rate hike could be inferred as a combo of tightening measures, through administrative and monetary policies, intended to forestall a further buildup of excesses that may lead to financial crisis.

As one would probably observe, while the Malaysian government and the BNW have taken steps to contain their imbalances from spinning out of control, this has not been so with the BSP. Thus, Philippine treasury yields continue to stream higher (mostly the long-end). The BSP adamantly refuses to increase rates. The likely reason is that should a shortfall in RA 10963 occur, the BSP’s easy money regime should function as a contingency measure.

However, good fortune has endowed the BSP. The peso has firmed during the past two days because the US dollar index has crashed. The US dollar index plummeted to a 3-year low.

The USD meltdown temporarily conceals the emerging strains in Philippine treasuries and in the peso 

 

Finally, South Korea’s 4Q GDP surprisingly contracted in the 4Q

From FoxBusiness.com (bold mine)

South Korea's surprisingly weak economic performance in the last three months of 2017 isn't cause for concern but does support the case for a cautious stance on central bank policy, according to economists and bank officials.

The economy ended its streak of outperforming expectations in the last quarter by recording its first quarter-on-quarter contraction since the global financial crisis.

That resulted in growth for the year--at 3.1%--coming in just below the government's 3.2% target, but above 2016's expansion of 2.8%. Markets on Thursday brushed aside the result, with the Kospi jumping 1% to reach record highs.

South Korea’s KOSPI posted an astronomical 21.76% return in 2017! The KOSPI has been up a fantastic 3.84% year-to-date!

South Korea’s household debt has been growing at the fastest rate among OECD nations. Like Malaysia, it raised policy rates in November last year, and more recently, imposed “macroprudential” lending restraints.

So with inadequate economic growth, loose monetary policies continue to fuel a feeding frenzy of speculations, not only in the stock market but also in Bitcoin.

Much like everywhere else, stock prices have become detached with reality.

The three national benchmarks of South Korea’s KOSPI, Malaysia’s KLSE and the Philippine PSYEi 30 have also exhibited the same pathology.

 

P.S. The Philippine PhiSYx hit another 8,999 today by force.

The biggest contributors to the huge end-session pumping were SM +.92%, JG Summit +.65% and Aboitiz Equity +2.9%

Yesterday’s -.88% loss was mitigated by colossal mark the close pumps by SMPH +.77% and by SM +1.1%

Tuesday’s .54% gain by the PSYEi 30 had been mainly through a stunning +2.34% pump on SM.

The Sy Companies have been the mainstays of the orchestrated pumps.

What A Day! As PSEi 30 Hits 8,999 From Massive Closing Pump, ROP 10-Year Yields Reach 6%, USD Peso Soar to 51.1!

The Philippine government announced a 6.6% 4Q GDP which contributed to last year’s or 2017’s annual GDP of 6.7%.

These statistical growth numbers matched estimates of analysts, according to Bloomberg.

The intuitive populist approach is to link the performance of financial markets to “economic events”.

For instance, since the Phisix (actually the Sy Group Index) closed the day up .54% to a new record: 8,999.02, this would be attributable to GDP expectations.

Well, not to belabor the point, returns of the headline index has vastly outclassed net income growth of its composite companies operating under these so-called GDP numbers.

Or in reality, economic and financial statistics have little relevance to actions of the Phisix.

For simplicity’s sake, whatever levels that the Phisix has reached so far, has hardly been a function of market forces. Instead, like last Friday’s and today’s action, the Phisix is being “forced up” or deliberately being engineered to reach certain levels.

Today’s 8,999.02 should be a great example. The last second prior to the market intervention phase, where all the magic has been contrived, the Phisix was down by a measly .1%. When the runoff period emerged, the Phisix jumped 57 points or was pumped by a stunning 0.64% to close up by .54%!

Guess which issues did the job? Well, SM was unchanged at the regular market session, but boomed by 2.34% at the close! SM had been accompanied by end session pumps in AEV (+.8%), SMPH (+.4%) and ICT (+.5%).

Again SM carried the weight of the index PUMP!

You see, stock market records have hardly been a function of natural market forces but from the constant tweaking and the brazen maneuvering of index sensitive issues.

Like the prevailing political environment, the end justifies the means.

Of course, such price fixing phenomenon has been nothing new. Nevertheless, these developments should serve as a reminder of how we got here.

And more importantly, the ramifications of the sustained abuse of the system will eventually surface. The only way to establish the permanence of this operating framework would be the banishment of the fundamental laws of economics, the business and stock market cycles.

And interestingly, as stocks have been seen and portrayed as one-directional trade, ROP bonds have been selling off!

 

The biggest magnitude of the selloffs has been in the long end, the 10-, 20- and 25-year yields. As of today, the 10-year was at 6.015%, 20-year 6.175% and 25-year 6.231%. These yield levels were last seen in 2012. However, then, yields were coming down. Today, yields have been rising. The bond markets, which appear to be pricing in higher inflation, continue to pressure the BSP to raise rates.

A dearth of liquidity plagues the ROP markets. And since domestic private and public financial institutions, government agencies and the BSP are the major holders or players, the yield curve is “managed”, like the PSEi 30.

ADB’s favorite yield curve indicator, the 10-year minus 2-year, has suddenly sharply steepened from November through today (upper window).

Additionally, the rise in the long end appears as being “managed”. I suspect that the BSP has tolerated this since it can hardly contain the long end. What it has done instead is to administer the pace of ascent. And to offset this, the BSP may have been concentrating its efforts to widen the curve by controlling the shorter end.

The abrupt spike in the yield curve appears to be a repetition of 4Q-2015 to 1H 2016. To recall, this was the period where the BSP launched the stealth stimulus: the monetization of the National Government’s debts. (lower window)

And it has been no coincidence that the USD peso has been strengthening. Perhaps, the BSP may have re-engaged in using its magical wand. It may have done so by providing subsidy to banks by offsetting higher rates with bigger interest margins, as well as, by painting an impression of G-R-O-W-T-H

 

The peso fell .52% today to 51.15. Interestingly, the USD peso strength comes amidst firming Asian currencies.

So two critical risks stare on the face of the domestic economy: a miscalculation of HB 10963 TRAIN’s impact and an imbalanced economy increasingly hooked to debt (bubble economy).

Although of course, HB 10963 is an offspring of the latter.  The Philippine economy is believed to have been pillared by consumption. So now the NG wants to partake of the alleged bonanza for its boondoggles. And for them, taxing consumption to transfer increasingly amount of resources toward politically directed economic activities would have little consequence to the economy.  

Everybody, except for the bond and USD peso market, seems to hope and think that the NG cannot err.

Finally, Philippine yields have outpaced rising yields in developed economies. For instance, the spread of Philippine and US 10-year yields used to converged, now it has been diverging. Embedded in the widening spread is the perception of risk.

Curiously, the Fitch upgrade in December and the US $ 2 billion in bonds sold by the NG to foreign investors a few days back has done little to improve the ROP and USD market.

A lagging effect perhaps?

Today, a remarkable dissonance had been conveyed by Philippine financial markets. Record Sy index, 2012 high yields and near 10-year high USD-php, which of them would eventually be proven right?