We must also notice that men have always practiced artificial delusion on each other, both innocently and intentionally. Enthusiasts, dreamers, crafty men, politicians, and demagogs have ruled the masses by suggesting to them utopias and other dreams of bliss, or by exciting their fears of unknown ills. They have always played upon the imaginative element. They can affect the masses far more than the master of science with his demonstrations. Defence against fraud requires the same arms and armor as defence against delusion—William Graham Sumner
In this short issue:
Managing the PSEi 30 Index: Why the PSE Recycles Old Issues; The Delusional Bet on a Return to Normal
I. PSEi 30: EMP and MONDE IN, BLOOM and RRHI OUT; Why the PSE Recycles Old Issues
II. PSEi 30 Reaches Two-Year High on Thin Volume, Weak Market Breadth and Select Upside Price Spikes
III. Mainstream Bets on a “Return to Normal”
Managing the PSEi 30 Index: Why the PSE Recycles Old Issues; The Delusional Bet on a Return to Normal
I. PSEi 30: EMP and MONDE IN, BLOOM and RRHI OUT; Why the PSE Recycles Old Issues
Figure 1
From the Inquirer.net, February 4: Consumer powerhouse Monde Nissin Corp. will debut on the Philippine Stock Exchange index (PSEi), while liquor-maker Emperador Inc. will rejoin the closely-tracked main index effective February 14. These two companies will replace integrated casino operator Bloomberry Resorts Corp. and Gokongwei-led Robinsons Retail Holdings Inc. (RRHI), based on the January to December 2021 stock performance review of the Philippine Stock Exchange.
The PSE's decision of managing members of the index appears to be primarily shaped by price trends.
Bloomberry [PSE: BLOOM] represents a poignant example.
When its share prices were at the top (2013 and 2019), the PSE included Bloomberry into the fold of PSEi 30. Bloomberry was booted out (2016, February 2022) when share prices were at the trough. Twice.
It will be the second time for Emperador [PSE: EMP] in the PSEi 30. The initial price surge of EMP prompted the PSE to include it on the elitist index.
However, a faster-moving ACEN in 2021 replaced it in 2020. Because of its recent parabolic ascent, the PSE reenrolled EMP.
Despite the fundamentals, the PSE appears to be hoping that the sustained upside momentum of share prices of the new entrants and the old members may help push the index to fresh record highs.
As we noted last December
And "whatever it takes" to support share prices seems to be the guiding principle of the overlords of the domestic capital markets.
Worshipping Asset Bubbles: PSE Officials Mulls Stability Fund for IPOs, Flexing SM’s PSEi 30 Muscles, The Continuing Telco Mania, December 20, 2020
But these ideas seem to be in a pickle.
First, the recycling of former issues and the inclusion of Monde exhibits the PSE's dilemma in attempting to push the index higher by including high-flying issues.
That is, despite the approach to the 7,500-level, the PSE remains plagued by a scarcity of big firms riding on a robust uptrend, which also translates to insufficient liquidity.
In sum, poor market breadth and low volume limit the choices of the PSE.
Figure 2
Next, the upside momentum of the recruits appears to be tapering off.
Prices of ACEN and CNVRG, members of the 'Fantastic Four' have been rolling over, possibly signaling an interim top. WLCON, which also entered the PSEi on a hot streak, appears to have winded down.
And so, the burden of pushing higher the PSEi 30 has shifted to the banks and the top 6 heavyweights.
II. PSEi 30 Reaches Two-Year High on Thin Volume, Weak Market Breadth and Select Upside Price Spikes
Thanks to the pre-closing pump on Friday, the PSEi 30 closed the week up 2.82% to its highest level in two years.
Figure 3
It has been a week that featured amazing intraday and pre-closing pumps and dumps.
As I also noted last December.
…chart technicals are no match for organized and orchestrated pumps.
So we won’t exhibit any chart patterns here.
Despite the headline feat, in the three attempts at 7,500 since 2020, the weekly main-board volume was the weakest today.
And with former leaders exhibiting signs of exhaustion, substantial spikes of share prices of a few index issues with the biggest market caps have fueled the PSEi to current headline levels. Banks and Real Estate issues seem to have taken the lead role.
Meanwhile, the broader markets have barely shared the gains of the headline index. Again, such conditions demonstrate the predicament of PSE officials.
The current state of financial liquidity seems to resonate with the thin volume of trade.
All things being equal, speculative excesses exhibited by amplified price volatility amidst slim volume magnifies market risks.
III. Mainstream Bets on a “Return to Normal”
Despite all the mounting cumulative risks, leverage has been the only thing that has consistently grown regardless of economic conditions.
And yet everyone seems blind to its costs, if not risks from it.
System leverage hit Php 21 trillion or 109% of the NGDP in 2021. A 1% increase in rates would translate to Php 210 billion, or about 15% of the net marginal increase of the inflated GDP in 2021. And the stock of debt will continue to escalate.
Figure 4
Like typical bubble cycles, the mainstream bets heavily on the theme of a return to normal. We bet that this represents a grand delusion.
Interestingly, while the index managers have been orchestrated a panic bid on stocks, along with Malaysia, the Philippine 5-year Senior CDS rates, based on ADB data, surged 12.4% and 13.6% respectively, which translates to increasing concerns over default risks.
Yours in Liberty,
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