The FTSE Rebalancing Equals Last Minute Pump Myth

The FTSE Rebalancing Equals Last Minute Pump Myth

This article tells the public that Friday’s massive pump or last-minute buying, was due to the rebalancing of FTSE indices, in particular. FTSE Global Equity, All-World and the All-Cap index, which took effect on March 15.  Added to these indices were JG Summit, San Miguel Corporation, and San Miguel Food and Beverage.   The FTSE Global Equity Index included Globe Telecoms.

First, March 15’s gigantic pump…

The PSYEi entered the floating 5-minute intervention phase DOWN by .34%. When the runoff bell rang, BOOM, the PSYEi closed Friday up by .62%! The PhiSYx catapulted by an astounding 74.55 points or by .97%! Such a pump may not be largest, but surely it is a significant one. (charts above from technistock.net and colfinancials)

The 6-minute pump signified a RESCUE. The headline index is not allowed to fall!

Chart patterns? Deliberate pumps craft these.

Record Highs? These are products of a series of orchestrated pumps.

Three of the SY owned companies were part of the syndicated bidding. SM (+3.15%) and SM Prime (+1.9%) were among the biggest. SM was stunningly down by 2.18% when it closed up by .97% by magic. The rescue included Ayala’s BPI (+2.95%). BPI closed the day up by 1.66%.

Metrobank (+1.53%), ALI (+.9%) and TEL (+2.15%) had also been inflated. Had JG Summit -1.8%, AEV -1.97% and SECB -1.97% not been DUMPED, these pumps would have generated a record! BDO was pumped by a modest .5%

These coordinated pumps had the Sy Group as main beneficiaries!

The Philippines is the only equity market in the world with massive tails at the close!

The PSE has GATED PhiSYx Distribution Data

The Philippine Stock Exchange (PSE) has gated the data on market cap float and the % share of component members to the PSYEi. The explanation? For one to gain access to the fundamental information on the index, an annual fee of Php 15,000 is required!

The PSYEi index, sold to the public as “the market”, has been walled as proprietary, bundled with the other more complex data! 

So the distribution share of the headline index has been withdrawn from public scrutiny. Why? Because these organized pumpings continue to reveal the massive build-up in concentration risks?

Constructing a portfolio predicated on the market weight share distribution by investors cannot be done, unless one pays Php 15K! Such limits the public’s investing options!

And the public has also become blind to how periodical changes in prices shift the weighing scale of component members of the headline index.

Keep the public blind, so the odds of generating positive returns decreases!

Great marketing by the PSE!

The Myth of FTSE Rebalancing Driving Prices

Back to the FTSE index rebalancing.

The FTSE announced adjustments on several of their benchmarks last February 15. That’s a ONE month window for changes.

But JG Summit was down 1.08% on Friday and -8.8% over the week. JG Summit was down 2.8% from the date of the announcement. Hardly positive signs of “rebalancing”.

Trillion pesos San Miguel was +.06% for the week, +1.28% on Friday from another rescue. Really, buying at significantly higher prices represent a wiser move? SMC has been up 6.54% since the announcement. So the benefit from FTSE rebalancing applied to SMC, but barely from this week’s actions

The FTSE equals last-minute buying has signified nothing more than reasoning from changes.

As Thomas Schuster of Leipzig University aptly puts it,

The media select, they interpret, they emotionalize and they create facts. The media not only reduce reality by lowering information density. They focus reality by accumulating information where ‘actually’ none exists. A typical stock market report looks like this: Stock X increased because… Index Y crashed due to… Prices Z continue to rise after… Most of these explanations are post-hoc rationalizations. An artificial logic is created, based on a simplistic understanding of the markets, which implies that there are simple explanations for most price movements; that price movements follow rules which then lead to systematic patterns; and of course that the news disseminated by the media decisively contribute to the emergence of price movements.

Economics 101: Price Ceiling Causes (Water) Shortages!

Economics 101: Price Ceiling Causes (Water) Shortages!

From the Inquirer: “Consumer demand for water bigger than supply since 2016” (March 13, 2019) [bold mine]

Manila Water Co. Inc. on Tuesday said that the prevailing water shortage was due to the yearly hike in consumer demand despite the fact that its allocation of raw water from Angat Dam had remained the same.

Geodino Carpio, Manila Water chief operating officer, told reporters that while the National Water Resources Board (NWRB) had allowed the company to draw 1.6 billion liters every day — or 1,600 million liters daily (MLD) — from Angat, its customers were now using an average of 1,740 MLD.

 “Demand has been increasing yearly since we started with the concession 21 years ago,” Carpio said, adding: “In 2016,demand surpassed the volume of our daily allocation from Angat.”

He explained that demand from Manila Water customers had gone up by around three percent yearly. In terms of volume, this translated to between 40 MLD and 50 MLD.

La Mesa Dam’s own store of raw water — that which does not come from Angat via tunnels and aqueducts — provides Manila Water a buffer stock, but this amounts to only 50 MLD.

“And even if the NWRB would increase our supply of raw water from Angat, the existing conveyance could transmit only 1,600 MLD,” Carpio said.

Currently, there are three pipes and six aqueducts that transport water from Angat to La Mesa.

If rising demand signified a trend, why has supply not aligned with demand? What happened to the equilibrating role of prices? Has this been representative of a “market failure”?

First, how are water prices set?

From the MWSS:

Pursuant to the Concession Agreement (CA), a Rate Rebasing (RR) is mandatory every five (5) years. RR is a process that determines the level of rates for water and sewerage services that permits the Concessionaires to recover over the life of the concession (until 2037) its operating, capital maintenance and investment expenditures. RR is also a way to provide appropriate incentives to benefit both the Customers and the Concessionaires.

The RR looks into the historical (past 5 years) performance of the Concessionaires against established targets or commitments. It then updates a reasonable projection of all factors for the remaining concession life with a proposed Business Plan detailing the next five years. The Business Plan needs the approval of the MWSS being the principal and eventual owner of all the facilities by the end of the concession. As required in the CA, both Concessionaires submitted their respective Business Plans for 2013-2037 within the deadline of March 31, 2012.

The same applies to provinces, according to the Local Water Utilities Administration:

Water rates are implemented only after they are presented in a public hearing and after review and approval by LWUA

The crux: water rates are DETERMINED by regulators.

Next, with the politicization of water prices, the coordinating and equilibrating role of prices have been impeded or disrupted.

As such, supply has been SLOW to ADJUST to demand changes.

Besides, business plans, submitted to the government, are typically based on the past.  Complexities like abrupt changes in weather, price inflation, and others, which are typically unforeseeable, render such plans unrealistic.

Most importantly, as a basic commodity, water priced below the market rates operates in the interest of the political institutions influenced by the popular rule.

That said, to regulate water, authorities resort to an implicit price ceiling.

From Econoport.org (bold mine)

Price Ceilings are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them. Price ceilings only become a problem when they are set below the market equilibrium price.

When the ceiling is set below the market price, there will be excess demand or a supply shortage. Producers won't produce as much at the lower price, while consumers will demand more because the goods are cheaper.Demand will outstrip supply, so there will be a lot of people who want to buy at this lower price but can't. Still, if the demand curve is relatively elastic, then the net effect to consumer surplus will be positive. Producers are truly harmed, as their surplus is doubly hit with a reduction in the number of firms willing to take that lower price, and those who remain in the market have to take a lower price.

See, imbalances reveals how the politicization of water prices cause shortages!

Economics 101!