Why The Phisix is the Third Most Expensive Bourse in the World? One Answer: Financial Alchemy

Why The Phisix is the Third Most Expensive Bourse in the World? One Answer: Financial Alchemy

The Philippine Phisix has acquired the distinction of becoming the THIRD most expensive national bourse in the world! Yes, THIRD – after the US and Belgium and trailed by India and Indonesia.

Recently published at an international media, such international “prestige” was derived from tally conducted by a financial institution, predicated on CAPE and PER metrics. [Chart of the Day: The Top 5 Most Expensive Stock Markets in the World July 19, 2017]

Nature abhors a vacuum. The extravagance in valuations didn’t happen overnight but was a manifestation of a process.  It signifies a product of long term dynamics covering stock market returns relative to published earnings.

Excessive valuations are emblematic of the imbalances brought about by the asymmetry in performances which has largely favored asset price inflation over earnings. Such even assumes that the declared corporate earnings growth has been accurate.

To highlight on the progression of such imbalances; Friday’s (July 21) activities represent another mind-boggling rendition of the financial alchemy - of magically converting stones into gold – used in the artificial propping up of the headline index!

 

Down by about .66% post lunch recess, a methodical bidding up of the Phisix (afternoon delight) commenced operations just after 2 pm.

At the close of the regular session, the Phisix was almost unchanged (actually down by 1.32 points). Notice that the Phisix was in the red for about 99% of the day’s session (left window)

However, when the PSE reopened after the market intervention phase – BOOM! – the Phisix rocketed by a staggering 1.08%!!!!

The Phisix was FORCIBLY pushed up by a COLOSSAL 86.71 points or 1.1% to generate the day’s 1.08%!!!

What cannot be achieved in the regular session had to be executed at the close through a concerted, collaborative, and engineered massive PUMP!

With a cumulative market cap of 44.44%; seven issues which had an average gain of 1.8% virtually turned mild losses to an astounding upside!

And this blatant price fixing process is called a market!

The numbers involved for such complicit activities have been staggering. Friday’s mark on close order pumps contributed to the following: (right window)

-79.32% of SM Prime’s 3.73% gains for the day, as well as, 54.24% of its week’s outcome!

-74.23% of Security Bank’s gains for the day, as well as, 62.31% of its weekly output!

-35.57% and 32.77% for Ayala Corp!

-71.86% and 61.59% for the biggest market cap SM!

And even more wondrous hocus-pocus: Red (water) turned into green (wine):

-.59% day’s loss by BDO was suddenly turned to an amazing 1.98% advance via a gigantic 2.57% pump! BDO was up .32% for the week (again mainly from Friday’s pump)!

-55.62% of AEV’s 4.13% day’s gains. On a weekly basis Friday’s majestic pump transformed -1.37% into a .93% advance!

-33.85% of TEL’s 2.1% were from ‘mark-on-close orders’. Such also chopped -1.46% of weekly losses by about half to just .75%!

 

The orchestrated end-session pump virtually involved ALL mainstream sectors. The price fixers had to ensure that a leak won’t foil their plans. Moreover, the stupefying scale of selective big market cap pumps had been implemented to generate such desired outcome.

As one can see in the lower pane, 7 of the top 10 biggest PSEi 30 issues had been the main focus of the grand scale of end-session price surges.

Desperate for a breakout, insiders have turned to “whatever it takes” to attain such goal.

Perhaps Monday’s SONA or the yesterday’s extension of Martial Law had been rationalized for such actions. Or maybe not. 

Since its inception in late 2014, this price fixing phenomenon has only escalated in intensity and frequency.

Present actions have only reinforced the religion of asset bubbles. For them, the laws of economics have been suspended for their convenience: free lunches and an impaired price system are without costs.

Well, good luck to them.

Nevertheless, as I will repeat, actions have consequences.

One of the major effects has been to MAGNIFY price volatility, which are symptoms of developing financial instability.

 

Aside from outlandish valuations, unsustainable vertical price trends account for as the other impact from the current dynamics. Vertical prices have spread to many other non-PSEi issues.

Raging vertical prices are symptoms of excessive, manic and epic speculations!!! These BW-SSO impulses are mini-bubbles within a larger spectrum of an asset bubble.

 

Growing divergences in market actions signify as another repercussion

Having surged in four consecutive weeks, the average number of daily issues traded has blasted way past the July 2016 highs! Present numbers indicate that - including the latest IPOs - the proportion of traded issues have reached a record about 95% of listed firms!

Curiously, while more issues have been traded, trade churning has materially diminished.

The reduction of the average daily trade (lower right) and the stunning shrinkage in the peso traded volume reinforces the perspective that there has been a NARROWING of activities to issues that have outperformed.

Moreover, BREADTH has DETERIORATED over the past FIVE of six weeks where decliners continue to build an edge over advancers. 

So the record “number-of-issues-traded” means that the diminishing number of issues experiencing sharp upsides has been financed by sales of BROADER market issues.

And because the PSEi commands a majority of the peso volume, rotation from the broad market translates to the funneling of much of these proceeds to big named PSEi 30 issues. Again, issues experiencing BW-SSO impulses have also been the focus for this rotation.

Market forces have shown reluctance to push the Phisix to 8,000 and beyond.  Hence, insiders (manipulators) have been impelled to take matters into their hands. The PHISIX will go beyond 8,000 by hook or by crook!

Yet supercilious, reckless and unscrupulous actions have largely ignored the ongoing buildup of CONCENTRATION RISKS in the domestic stock market.

As a reminder, markets exist for a socio-economic purpose. Hence, such unfettered PERVERSIONs of the PRICING system translate to the accumulation of monstrous DISTORTIONs of the marketplace and of the economy.

The latter, again, has been evidenced by such frantic race to build supply on popular sectors, largely financed by credit, which resonates with the current conditions of the stock market.

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The PSE’s Jinx, Political Entrepreneurship as a Winning Formula and Banking Fraud as Symptom of Market Tops

A wild celebratory mood has already engulfed the PSE, even when PSEi still trades below the 8,000 level

PSE officials hardly realize that their actions are symptoms of extreme sentiments

PSE’s Jinx: The PSE’s Worship of Asset Bubbles

They initiated their cheering with the “highest level for the year” early June.

At the end of the same month, the PSE ravished at the “ 14.7 percent increase for the PSEi in the first six months of the year”, as well as “Market capitalization of companies listed at the PSE hit a record high of Php16.42 trillion on June 14, 2017. Meantime, property developer SM Prime Holdings, Inc. also reached a record market capitalization of Php1.01 trillion on June 9, 2017. This was the first time a domestic company breached the Php1 trillion market capitalization mark.” 

To reflect on the mainstream’s religion, the PSE bears the idea that prices are the only thing that matters.

 

Since 2009, not only has all 1H performance have been positive, but 2017’s 14.7% ranked only fourth compared to 2009 (+30.17%), 2012 (+20%) and 2014 (+16.21%). So 2017’s performance has just been one of yearly humdrum.

Since the BSP has embraced the “trickle-down” (wealth effect) policies of keeping interest rates at historic lows, then this should be expected. The BSP expanded their toolkit in 2015 to use record monetization of the national government’s debt.

Record market cap mainly reflects on the many new IPOs.

It’s the 2H half performance which should be a challenge. Three of the last four years posted negative outcomes.

From either 2006 or 2009, the 2H’s general trend has likewise been southbound.

So 1H typically has served as a crucial buffer against 2H’s decline. Will this time be different?

While past performance may reverberate, I’m not a rigid believer in patterns. However, given that many factors seem to be converging, it would seem that a repetition or a reinforcement of the present dynamics is likely.

Moreover, one day soon, the Phisix will share the same secular cycle as with its forebears.

PSE’s Jinx: Presidential Visits at the PSE

The Philippine President’s recent visit to the PSE spotlights the third sign of the industry’s euphoria.

 

Prior to Mr. Duterte, two of the three visits of the Philippine presidents have coincided with bear markets during the last decade.

PGMA made an unannounced appearance at the PSE on October 24, 2007. The PSEi dropped over 50% from then.

PNOY regaled the string of new records at the PSE on March 6, 2012. Yet, the PSEi’s winning streak extended until May 15, 2013 or when the PSEi reached 7,392.2

About two years later, PNOY consecrated the pinnacle of 8,127.48 four days after or on April 14, 2015. The Phisix dropped to bear market levels after.

PNOY’s 2012 magic actually signified the sweet spot of the BSP’s embrace of zero bound rates.

Nevertheless, embracing winners are intuitive to the Homo sapiens species. The herding effect, groupthinkand the survivorship bias are manifestations of such psychological-heuristic dynamics.

And more so with politicians who, to enhance their appeal to the voting public, would have the propensity to grab credit of a winning situation. And euphoria easily attracts politicians.

YET, manias are usually emblematic of market tops. From the perspective of bubbles, once Presidents take the center stage of the PSE, it would signify an ominous sign of a likely inflection point

And given the current conditions, I would wager that a vastly overrated, extremely expensive and massively deformed market would be ripe for, at least, another 7,400 jumping rope dynamic.

PNX’s Winning Recipe: Political Entrepreneurship Backed By BSP’s Easy Money Policies

Here’s more.

This year, 7 listed firms commemorated their respective anniversaries at the Philippine Stock Exchange.

In celebration of their corresponding silver listing anniversary, officers of UnionBank, Cebu Property Development Ventures, and International Container Terminal rang the PSE’s ceremonial bell.

Vista Land, National Reinsurance Corporation and Aboitiz Power which had their 10th year of listing likewise observed the same tradition

But TENTH anniversary of Davao based energy firm, Phoenix Petroleum Philippines was unique. It had a powerhouse guests list led by no less than the Philippine President Duterte and his key cabinet members!

Mr. Dennis Uy, the company’s President and owner, reportedly was one of the major donors to Mr. Duterte’s triumphant campaign for the highest political post last year.

If there should be any message from the event, Mr. Uy projected his closeness to President to the public. Or PNX had the Philippine President as its major benefactor!

Other than having the Philippine President as the guest of the honor, lady luck also has smiled on Mr. Uy as his PNX zoomed by an astronomical 112.4% year-to-date (week on week: +13.28%)!

From a market cap basis (outstanding shares x share price), PNX swelled to Php 16.3 billion (Friday, July 21) from Php 7.96 billion at the start of the year. That would mark an astounding Php 8.32 billion windfall for shareholders. If Mr. Uy, his family, and his associates control 51% of the firm, then the recent price surge would redound to a gigantic Php 4.06 billion largesse!

Phoenix posted earnings growth of 6.67% or Php 1.01 billion in the year 2016 and 21.42% or Php 282.3 million (Php 1.129 billion annualized) in 1Q 2017. The management attributed the 1Q 2017’s stellar improvements mostly to the rebound in global oil prices (26% rise in fuel prices).

So based on the Friday’s close, asset inflation immensely trumped the firm’s annualized operating earnings by about 7 to 1! It is payback time for being an avid political supporter.

Mr. Uy’s fortune is on a roll. The Duterte government’s Philippine Amusement and Gaming Corp. havereportedly awarded the businessman’s consortium a gaming license to operate an integrated casino in Cebu. Perhaps the firm will get listed too. This means more transfers from the public’s savings to Mr. Uy’s businesses. Of course, the BSP’s easy money policies will facilitate for such implicit subsidies.

And to repay for such bounty, Mr. Uy promised the President to establish a Php 100 mutual fund for the benefit of the soldiers and the policemen.

Php 100 million reciprocation for a political economic bonanza of Php 4 +billion, wouldn’t such be considered a tightwad?

As one would note, a big deal of moneyed and politically connected people has been munificently benefiting from the BSP’s trickle down easy money policies, channeled mainly through asset bubbles.

Sauve Qui Peut? High Ranking Private Bank Official Allegedly Attempted to Defraud a Client

Easy money SHORTENS people’s time preference and orientation. Because of greater demand for instant gratification, the temptation is for “sauve qui peut” (save yourself if you can), or the recourse to frauds, swindles, and defalcations that are meant to preserve the benefits of the recent past.

A high ranking private sector bank official, who was earning Php 250,000/month (Php 2.5 million a year), wasreported to have been caught in the alleged attempt to embezzle interests rates payments worth (Php 2.25 million). The payments were to be made by a client from a falsified loan. It must be utter desperation to prompt for a gamble to purloin money that has been less than the earnings of the accused. Most likely, media and the bank have sterilized the case.

The Bankers Association of the Philippines says that this has been an isolated case. I doubt so.

Just look at the scheming wild and brazen “marking the close” activities executed almost daily at the PSE. Concealed behind those price fixing actions have surely been gobs of unscrupulous transactions. The shifting of the banking system’s investment portfolio from AFS to HTM could partly be symptoms of accounting chicanery or skeletons in the closet.  [See Newly Inaugurated BSP Chief Warns On The End of Global Easy Money July 9, 2017]

Once the economy materially slows, more of these cases are expected to surface. Historian Charles P Kindleberger (Manias, Panics and Crashes) has once warned that such “sauve qui peut” actions signal the climax of Manias.

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Chart of the Day: The Top 5 Most Expensive Stock Markets in the World

Infographics from the Marketwatch

Some observations

Although the infographic above exhibit both the least and most expensive stock markets of the world, pardon me for focusing on the latter. Global stock markets have been on a tear.

Expensive hardly signifies a product of growth. When the numerator (returns) extensively outpace the denominator (earnings), this is called price multiple expansion.

Thus, the consequence of a frantic yield chasing phenomenon is a steeply overpriced stock market. For the Philippines, combine the rampant use of “marking the close” or the price fixing process to its stock market’s exorbitance.

“Expensive” did not occur in a vacuum. Such pricing imbalance signifies a ramification of a time-consuming process.

Two of the top five most expensive stocks in the world had been from ASEAN. The distinguished third runner up represents no other than the Philippine Phisix.

My impression has been that the numbers used for Philippine stocks were computed using the average. The Phisix is a market cap weighted benchmark. To apply a market cap weighting to the figures above would expand PER by about 20% premium!

According to the local church of asset bubbles, there is no such thing as expensive. Prices have only one direction—UP, UP and away!

Has Peak Auto Sales Arrived?

Campi: Vehicle sales in H1 up by 17% - Business Mirror, July 13, 2017

June auto sales up by 14% amid ‘dealer push’ – Manila Times, July 14, 2017

Auto sales jump 17% in 1st half, ahead of impending tax – Manila Bulletin, July 13, 2017

Looking at the headlines one would have the impression that the auto market continues to grow at a very brisk pace.

Today’s HISTORIC LOW nominal interest rates, which are equivalent to negative real rates, have functioned assubsidies to debtors. Under such free money environment, one should expect little wrinkles in the sales of leverage industries, such as auto vehicles.

 

The recent spike in the volatility in growth rates had partly had been blamed on holidays.

So I waited for the June data in the hope for a smoothing out of the industry’s growth trend.

Gross unit sales climbed to a new record. However, seen from the growth rate, rose colored glasses would have to face a harsh reality.

If my suspicions are right, auto sales have hit its peak in July 2016. From then, diminishing returns will most likely prevail.

Growth rates of auto sales have tumbled since. The BSP’s data on banking system’s auto loans seems to have reinforced such cascading trend of auto sales

The general drop in the growth rates appeared to have impelled for serial spikes in month on month variabilities

 

So I detailed the growth rates based on the first two quarters and the first semester.

Part of the spike in the first quarter had indeed been due to holidays. February’s single digit growth of 7.52% was offset by March’s 32.9%.

In the second quarter, the slowdown became apparent. Monthly growth rates plunged to 4.84% in April, 17% in May and 14.06% in June. Only two months registered above 20% growth rates in the first half of the year.

Politicking and increased government interventions will likely compound on the industry’s woes.

The proposed increase in excise taxes will further smother the ongoing corrosion of car sales. However, prior to either the passage or the enactment of the tax reform law (TRAIN), the initial response would likely be a surge in sales. This would be equivalent to selling the price increase.

But over the longer period, higher prices will most likely reduce demand.

Ride sharing apps Grab and Uber were recently fined Php 5 million each for the violations of accreditations. In response, Grab announced that it would be suspending accreditations of new operators. The likely result will be reduced demand for cars for the ride sharing industry. The other consequence would likely be for Grab and Uber to pass their fines to consumers through higher prices. Though of course, Grab denies this. Moreover, the government announced that it would start impounding Grab and Uber vehicles and fine operators and drivers should they lack franchised documents.

With the intensifying war against the ride sharing industry, the commuting public will be further inconvenienced by the reduced supply of vehicles for hire. That’s aside from longer travel hours and increased personal safety risk when dealing with discourteous and arrogant cab drivers

Additionally, reduced means of livelihood increases public safety risks

So where would the marginal demand for cars, shopping malls, real estate and hotels come from now???????????