Has PSEi 8,400 Been Designed to Boost the Administration’s Sagging Popularity and the DoF’s FDI Dilemma?

Has PSEi 8,400 Been Designed to Boost the Administration’s Sagging Popularity and the DoF’s FDI Dilemma?

Watching the Philippine Stock Exchange in action for the whole day is a rare circumstance for me. That is because I have come to expect that the interval between the regular session and the runoff phase or the market intervention period typically determines the daily outcome. So I look at activities of the PSE usually way past its close in the late afternoon.

 

And Monday’s pump at the close typifies such action.

Tuesday was more of the late ‘afternoon delight’ coordinated pumping.

Though the following days would look orderly, it has not been due to the absence of price-fixing action. Rather, these manifested uncoordinated opposing actions that resulted in offsetting forces that led to the semblance of regularity.

However, I am fascinated by the recent turn of events. As I wrote last weekend,

Given that its ascent seems as being engineered, an even more aggressive upside for the stock for looks likely. But this is NOT a call for a buy. [Sy Group of Companies Pushed PSEi from 8,022 to 8,310!October 8, 2017]

The prospects of the acceleration of the blow-off phase of several issues led by SM have smitten me.

Today’s activities have entirely been about fixing a PSEi 8,400.

The SM-AC tandem jumped from the opening to trade with gains of 1.5% and above. These gains had to be maintained throughout the day with tremendous efforts (exhibited by the wild swings/volatility)

The duo was initially unable to lift the index by over .3%. That was largely due to BDO’s big drop of nearly 2% while SMPH and ALI were very little changed.

With the exception of URC, issues among the 6-10 ranking were largely uncooperative. However, the losses of the quintile peers largely neutralized the gains of URC

In the afternoon, these two biggest property firms joined the bandwagon. By then, the Phisix raced to the highest level of the day which extended through to market intervention phase.

Some numbers from the day’s session:

For the PSEi: 15 issues closed in the red, 2 issues were unchanged while 13 issues were up. Only 6 issues had gains of over 1%. The average gain of the Phisix was only .18%.

Since the aggregate share of market cap weight was 35%, these four issues (SM, SMPH, AC, and ALI) weresolely responsible for the day’s advances. Yes, absolutely stunning!

The broader market was even more unresponsive.

Losers (122) trounced gainers (82) with a substantial margin of 40.

In other words, the market wanted to profit take, but a falling Phisix was not to be permitted.

Here’s the thing.

Having developed overconfidence that the markets are now under their control, manipulators or price-fixers have come to believe that the destruction of market prices comes with no unintended consequences.

 

So they have wickedly pumped up prices of SM and AC, not only to record levels but also to at a rate never before seen in their respective historical price trends! The above are the weekly charts of SM (since 2005) and AC (since 1984).

I am expecting the three others (SMPH, BDO, ALI) to likely do the same.

And the question is why?

Could it be because as a consequence of FDI plunge in the 1H, the political strains have come to haunt the Duterte administration?

From the Inquirer, [90% investment fall looms large for finance team October 9, 2017]

This figure loomed large as the Duterte administration prepared to send off an economic team to attract US businessmen to the Philippines — new investments declined by 90.3 percent in the first half of 2017.

The gloomy picture, presented at a Senate budget hearing and cited by Senate Minority Leader Franklin Drilon, cast a long shadow over an announcement by the Department of Finance (DOF) about sending an economic team to the United States to present the administration’s “Build, Build, Build” infrastructure plan and a blueprint for tax reforms.

Drilon had expressed alarm at the figures presented at a hearing last week on the budget of the National Economic and Development Authority (Neda).

Could it be that record Phisix has been engineered to bolster the DoF team to show US businessman of C-O-N-F-I-D-E-N-C-E????

If so, that would be a dirty trick.

Meanwhile, the Board of Investments (BOI) immediately reacted by divulging statistics predicated on “investment pledges” to counter such claims. Discussions through different wavelengths? Politics is definitely amusing.

The BSP also came up to clarify: [Bangko Sentral ng Pilipinas Statement on Recent Developments and Outlook on Philippine Foreign Direct Investments October 12]

The lower net inflows were due to the 90.3 percent decline in net equity capital to US$141 million from US$1.4 billion a year ago. Data showed that the significant inflow noted last year was attributed to a large investment flow that went to the financial and insurance industry. Equity capital infusions during the first semester of 2017 were sourced mainly from the United States, Japan, Singapore, and were invested in real estate, financial services and manufacturing. The decline in net equity capital was, however, offset in part by higher investments in debt instruments and reinvestment of earnings amounting to US$3 billion and US$416 million, respectively.

Meanwhile, the recently released July 2017 FDI outturn brought the first seven months net FDI level to US$3.9 billion, 16.5 percent lower than previous year’s level. Net equity capital continue to register inflows amounting to US$272 million, but these were lower than the 2016 level. Investment in debt instruments and reinvestment of earnings remain on an uptrend as they reached US$3.1 billion and US$487 million, respectively, for January-July 2017.

See table here.

And notice that so-called FDI has mainly been about DEBT instruments or intercompany borrowings.

It is not a certainty that debt money from foreign affiliates or headquarters has flowed into “investments”. What is a sure is that dollar-denominated debts would signify “US dollar shorts” or increased foreign denominated leveraging in the face of a falling peso

That said, could PSEi 8,400 have been the handiwork of the regime and their private sector cohorts? Could PSEi 8,400 have been engineered to shore up the administration’s falling popularity?

The administration’s popularity will ultimately depend on economic conditions (read my lips: I-N-F-L-A-T-I-O-N - real life and not statistical inflation) rather than popular social issues.

 

Bonus chart: Enron

Ayala Land-SSI Group’s FamilyMart For Sale? Media Expert Utters an Economic Taboo: OVERSUPPLY!

Last May, the Inquirer regaled us with “Vacant space troubles malls in Metro Manila”

Today, the same outfit (and reporter) reported that the convenience store chain of retail titan Ayala Land injoint venture with high end retail specialty SSI Group is up for sale:

The Philippine retailing business of FamilyMart, partly owned by the Ayala and Tantoco groups, is on the auction block, signaling a shakeout in the highly competitive local convenience store business.

Several industry sources confirmed to the Inquirer that the local network of FamilyMart—which has around 72 stores to date—has been offered to prospective new investors in recent months.

The first lesson from the article is that it demonstrates of the close ties between media and key establishment organizations. Internal corporate affairs leak into public as news through select media outfits.

Though presented as news, another way to read the article is to construe it as an advertisement in favor of the sellers.  Established institutions need not pay for ads space. They need only to whisper into the ears of their most favored reporters and their agenda gets aired for free!

The thing here is that this exhibit why media agencies typically act as megaphones for the mainstream’s interests.

Back to the article.

Both Ayala Land and SSI Group replied to the PSE that in the case of FamilyMart, they are “currently exploring various options intended to strengthen and grow the business” and that “no definite course of action has been finalized”.

In short, neither did they deny nor confirm the report!  

Well, that response should be obvious.

A confirmation of interest to sell could have been discerned as an act of desperation. Thus such would only enervate the seller’s pricing power. 

The intent has been to insinuate its actions, most possibly meant to generate buying interests. You see, the article was an advertisement!

In anticipation of the PSE’s query, Ayala Land’s template response resonated in the article: (bold mine)

“Asked about the rationale for the potential divestment, a source from the Ayala group said the conglomerate was only evaluating its options, adding that 24/7 retailing—a business that required scale—was not really part of Ayala Land’s core business.

Hasn’t ALI’s business been mostly about consumers? Retail and real estate in specific? What makes 24/7 a non-core business, when it is about consumer retail? Low margins, perhaps?

Or this?

 

FamilyMart shed 31% or 32 stores from the end of the 2Q 2016 to 2Q 2017. The biggest number of closures (26 stores) occurred in the 1H of 2017.

Almost the same numbers apply to the gross selling area; FamilyMart dropped 37% or 4,971 sq.m. from 13,439 in 2Q 2016 to 8,468 in 2Q 2017. The bulk of the shutdowns (3,163 sqm.) happened in the 1H of 2017!

Naturally, these closings came in response to losses.

From SSI’s 2016 annual report: “The Group’s share in the losses of Philippine FamilyMart CVS, Inc. was ₱145.8 million as compared to ₱80.0 million in 2015.”

From SSI’s 2017 2Q 17Q: “The decline in losses of joint ventures was a result of a 22.1% decline in the Group’s share of FamilyMart losses to ₱37.0 million”

Taken together, FamilyMart was a LOSING venture! And it was hardly because the 24/7 store model was not part of Ayala Land’s core business. People intuitively shun ownership of loses.

Importantly, the shutdown of 32 FamilyMart’s outlets contributed to the retail vacancies! FamilyMart’s numbers may be small, but it has been emblematic of the conditions of marginal players.

The article goes on to explain the likely cause: competition.

“In the 24/7 retailing business, competition heated up in the last six years with the entry of new brands that sought to challenge the two leading players 7-Eleven and Mini-Stop, respectively run by Philippine Seven Corp. (PSC) and Robinsons Retail Holdings Inc. (RRHI).

But the article didn’t mention this…

The market leaders (7-11 and Mini-Stop) have been suffering too!

Yet the frantic race to build supply persists…

“Aside from Family Mart, the Puregold group also brought another foreign brand—Lawson—into the local market while the SM group brought in Indonesian brand Alfamart. Real estate magnate Manuel Villar, for his part, has also built his own convenience store network using his own brand “All Day.”

Need I say more???

Finally, one ‘expert’ seems to get it… (bold mine)

“All retailers were expanding at the same time, so the growth in selling space just outstripped the growth in consumer demand in this retail segment—a classic case of oversupply andfragmentation of the convenience store market resulting in expected returns failing to materialize,” said Jose Mari Lacson, head of research at ATR Asset Management.

I raise the verb ‘seems’ because of the ex-post nature of narrative. Or, the expert explained from what has already happened.

Yet it is hardly about fragmentation, but principally the case of OVERSUPPLY. I wouldn’t know how to define fragmentation on a one-store concept retail chain.

Here’s the thing.

The centerpiece of the race-to-build supply in the retail space has been from the expectations of an endless stream of purchasing power by residents.

Since consumer retail expansion has been occurring in virtually ALL categories, what should stop the convenience store squeeze from spreading to the other retail segments (or periphery to the core transmission)?

 

Remember, close to 100% of retail transactions have been based on the peso (credit or cash).

And these have transpired even as the BSP and the banking system has been flooding the system with a countless number of pesos!

What more when ‘free money’ hits the proverbial wall????