At any given time there exists an inventory of undiscovered embezzlement in — or more precisely not in — the country’s business and banks. This inventory — it should perhaps be called the bezzle — amounts at any moment to many millions of dollars. It also varies in size with the business cycle—John Kenneth Galbraith
In this issue
Was the Philippine "Maharlika Fund" Behind This Week's Phenomenal PSEi 30's Contrarian Gains?
I. The Mainstream Celebrates the Gravity-Defying PSEi 30 Rally
II. Concentrated Pumps Manifested on the Volume Share of the Top 10 Brokers
III. Concentrated Pumps Manifested on the Main Board Volume
IV. Coordinated Pumps Manifested on Changes in Free-Float Market Cap
V. The Likely Implications for Market Interventions: Hallmarks of a Bull Trap
VI. Six Reasons for the Possible Involvement of Maharlika Investment Fund on the Weekly Gains of the PSE
Was the Philippine "Maharlika Fund" Behind This Week's PSEi 30's Contrarian Gains?
The footprints of interventions had almost been ubiquitous at the PSE trading last week. Could the PSEi 30s defiant global outperformance be the handiwork of the Maharlika Fund?
I. The Mainstream Celebrates the Gravity-Defying PSEi 30 Rally
Inquirer.net, September 30: Efforts to promote the Maharlika Investment Fund (MIF) overseas are not gaining as much traction as expected, mainly because there is not enough information being conveyed, according to the managing director of HSBC……According to Finance Secretary Benjamin Diokno, the Maharlika Investment Corp. (MIC)—which would manage the MIF—is expected to be operational before 2023 ends.
ABS-CBN News, September 20: The P75 billion contribution of the Land Bank of the Philippines and the Development Bank of the Philippines to the Maharlika Investment Fund is still with the Bureau of Treasury, as the Maharlika Investment Corporation Board has yet to convene and nominate a bank account…Suansing said the funds were earning 3% to 5% on government securities while still with the banks, However, the MIF will invest them to higher yielding securities. Asked whether the MIF received other investments, Suansing said none so far.
The PSEi 30 and the PSE ramped up this week, just as we dealt with how the mainstream may use seasonal factors to rationalize a stock market pump.
With hardly any lucid factor, the consensus attributed the fierce 3.95% four-day rally to improved sentiment, optimism, and portfolio rebalancing from changes in the index.
Figure 1
Some even celebrated this event to show how the PSEi trumped its global peers. (Figure 1, topmost chart)
Up 2.9%, the PSEi posted the second-highest weekly return among Asian-Pacific bourses after the 4.4% of Laos LSCI. But 6 of the 19 Asian-Pacific bourses reflected the global equity slump. (Figure 1, middle pane)
Ironically, this rally came as global equity markets buckled under the onus of rising global bond yields.
Along with its ASEAN peers, the weekly increase in Philippine local currency bonds reinforced its recent uptrend. (Figure 3, lowest window)
Worse, yields of the Philippine US dollar bonds rose for the second week. It was among the highest in the Emerging Market sphere.
From Credit Bubble Bulletin’s Doug Noland, September 30: EM dollar bond yields spiked higher. Yields jumped 21 bps in Colombia (8.21%), 18 bps in Panama (6.76%), 16 bps in Turkey (8.56%), 14 bps in Indonesia (5.82%), 13 bps in Saudi Arabia (5.47%), 12 bps Mexico (6.34%), 12 bps in Peru (5.95%), and 11 bps in the Philippines (5.46%).
For one thing, with no clarity on its trigger, nearly everyone on social media tried to reason from price actions (post hoc fallacy).
But what was the catalyst?
Was there a sudden flood of savings to have spurred this equity-buying binge? Or has foreign money abruptly found strong interest in the local equities? Or could some entity/ies with access to third-party funds have orchestrated this buying spree?
II. Concentrated Pumps Manifested on the Volume Share of the Top 10 Brokers
Forensic examination of the market internals provides some clues.
Figure 2
First, the average mainboard daily turnover increased by 47.9% from Php 4.2 billion to Php 6.19 billion. The percentage looked impressive primarily due to the base effect. But volume remains depressed relative to the present downtrend. (Figure 2, topmost graph)
Next, the top 10 brokers cornered an average of 64% of the total trading volume last week, above its 14-month daily average of 60.6%. Cross trades (my estimates based on the top 3-5 brokers) accounted for 14.24% of the main board volume. That's an understatement. (Figure 2, middle and lowest graph)
The thing is, the increasing share of volume to the top 10 brokers, mostly institutional brokers, translates to rising concentration. Or a few entities are responsible for most of the turnover.
III. Concentrated Pumps Manifested on the Main Board Volume
Figure 3
Furthermore, the share of the top 20 most traded issues climbed to 85% against its 14-month average of 83%. (Figure 3, upper window)
Simply said, in another sign of concentration, only a few issues have shanghaied the core of trading volume.
Although the pie of the Sy group of companies slipped from 20.44 to 20.2%, BDO's share remarkably jumped from 8.5% to 10.2%. (Figure 3, lowest pane)
As a result, BDO grabbed the second-highest market cap this week from its sibling real estate company, SM Prime Holdings!
Briefly, the focus of the buildup of trading volume was on the heavyweights.
IV. Coordinated Pumps Manifested on Changes in Free-Float Market Cap
Sure, it is indisputable that the upside spike bolstered the sentiment of market participants, who have been itching for a rally. The PSE's breadth was broadly positive, with the advance-decline spread of 140 marking the largest since the week ending January 13, 2023.
Figure 4
The PSEi 30's breadth also had a bullish majority, with 21 of the 30 issues up. (Figure 4, topmost graph)
But the gist of the nominal gains had been crammed within the top 10 free-float market cap heavyweights.
Seen differently, in the context of the weekly gains in market capitalization (measured in changes in bps), the field narrowed to 5 of the top 6, with BDO, SM, Ayala Land, and Aboitiz Equity—in pecking order—carrying the bulk of the 2.9% advance. (Figure 4, middle chart)
And so, from the price change perspective, the free-float market cap gains were also concentrated on a few issues. The pump seemed like an execution of a well-designed scheme.
Lastly, special block sales of MPI and BLOOM clouded the data on foreign flows, though last week showed a net selling of Php 10.13 billion. To exclude these two days, foreigners remained net sellers of Php 423.5 million.
Pulling this all together, the dynamic behind the PSEi's 30 weekly gains came in the backdrop of local buying with the combination of concentrated activities on brokers, volume, PSEi 30 price, and market cap changes.
Amazing, right?
V. The Likely Implications for Market Interventions: Hallmarks of a Bull Trap
In all this, the Php 500 billion question is, who or what entities could have been behind the concentrated pumps?
Firstly, the week's activities signified a form of "signaling" designed to shore up the "animal spirits" to embellish the state of the Philippine markets regardless of the actual conditions.
Secondly, these actions seem to represent contempt of the marketplace. In the same dimension as end-session pumps and (rice and other) price controls, it virtually asserted the supposed dominance of politics over the law of scarcity.
Thirdly, governance issues underscore the other critical ramifications of the politicization of the marketplace. If such actions compromise the integrity of the pricing process, why would such decadent attributes not distill into the financial conditions of listed and unlisted firms (or the political economy)?
Fourthly, pumping markets for political objectives highlights the inflationary biases of the participants. The question is: cui bono (who benefits?)
Lastly, the politicization of the markets amplifies distortions of capital that lead to economic maladjustments and consume savings. In this light, coordinated pumps may represent a bear market rally or a bull trap.
However, because resource misallocations widen the gap between prices and economic reality, their buildup only compounds the underlying fragility that magnifies the risks of a disorderly market clearing process (or a market crash) over time.
As a side note, found wanting in evidence is the assertion that "high rates" have been an encumbrance to the PSE. Has the mainstream not seen the distinction between the low rates of 2011-17 and the road to the historic rock-bottom rates from 2019 to early 2022? The latter episode tells us that the low-rate trend does not equal a bull market. Or, balance sheet health marked the difference between the first and the second chapters. (Figure 4, lowest diagram)
As it is, there is no mechanical relationship between rates and stock market performance.
VI. Six Reasons for the Possible Involvement of Maharlika Investment Fund on the Weekly Gains of the PSE
Circling back to the concentrated pumps.
Six reasons for the possible involvement of the Maharlika Investment Fund (MIF) and its parent the Maharlika Investment Corporation (MIC) in the recent gains of the PSEi 30:
One. Available funds. As the news stated, the MIF recently received its seed capital of Php 75 billion from two government banks (DBP and Landbank).
Two. Select banks as Trustee. Although the operations of the MIF will commence this year (by the way, it is October), the available funds have been siloed or warehoused in select banks earning interest income on government securities.
Three. Plausible deniability. Authorities may have engaged in "plausible deniability" on other investment placements. Yet, the DoF, who chairs the MIC, could instruct banks and non-bank financials to test the waters. If banks can hold government securities, why stop there? After all, the MIF is an investment Sovereign Wealth Fund.
Four. Motive. Amidst the pitches made by the Philippine leadership to the international investment community in Malaysia last July and in Singapore last September, the lukewarm response translates to diminished face value for the signature legislation of this regime.
How will placements come when the Philippines' asset markets have signified one of Asia's laggards? Therefore, "something must be done" to uphold the law's credibility.
Five. Goal. From the Department of Finance (DoF): "the expected return of MIF which is estimated to be around 8.6% on average." Not just to test the waters, perhaps PSE officials may have convinced the DoF and other officials to support the marketplace by rationalizing its "cheapness."
The MIF, through the DoF, could be in a hurry to deliver such returns.
Six. Quid pro quo. Since the PSE threw its support on the enactment of the Maharlika Fund, inflows to the PSE may constitute part of the political reward from the administration.
It may be possible that the pumps may be from other agencies unrelated to Maharlika. In any case, interventions are no free lunches.
Sure, the initial salvo of MIF placements can translate into a bear market rally or bull trap. But if my suspicions and analysis are right, the late American economist Ben Stein's famous maxim—If something cannot go on forever, it will stop—should apply.
Caveat emptor.
