Construction Boom? HLCM’s 2Q and 1H Sales and EPS Growth Crashed! Frenzied Bids on Property Issues Sends the Phisix to 8,037

Last weekend, I pointed out that the government’s measure of construction material prices - retail (CMRPI) and wholesale (CMWPI) – revealed weakness in the construction industry. And if these numbers showed signs of relevance to reality, then such would likewise be manifested in the financial performance of construction and construction related companies. I zoomed in on the cement industry.

By next month, the major cement manufacturers will be disclosing their performance for the second quarter. We should see if quarterly revenues of these companies will resonate with the quarter’s price activities.

Construction BOOM? The Government’s Construction Material Prices Have Been On a Swoon, Why??? July 24, 2017

Holcim Philippines published their 2Q and 1H activities today.

There you have it.

HLCM’s gross revenues plunged a staggering 20.84% in the 2Q! The 2Q sales crash weighed on the 1H performance, which recorded an enormous 16.74% dive in revenues. 1Q sales tumbled 12.5%.

HLCM’s published 2Q and 1H eps almost halved.

This quarter’s dismal financial performance represents an extension of the previous 2.

The difference has been that the deterioration for the 2Q has only exacerbated.

Now, one company’s misfortune may not reflect on the industry. So I’d have to wait for disclosures from HLCM’speers, namely Aboitiz, Cemex, and Eagle.

Property Fueled Phisix 8,037

After Friday’s wonderful magic of turning ore into gold, the establishment’s campaign for the Phisix to attain a new record comes as no surprise.

Nevertheless, the weight of such task has been borne mostly by the property index.

Today, properties surged by 1.68% on the back of considerable gains by all PSEi components, specifically ALI +1.74%, SMPH +1.76%, MEG +5.5% and RLC +1.62%.

Ayala Land’s fresh record has been an outcome of a gamut of violent pumping (lower window). Prices of many firms have been subjected to similar dynamics.  Vertical prices are signs of price instability.

Curiously, today’s early pumping was met by a mark on close DUMP (right window)!

Pumps and dumps are a healthy sign of markets????

More…

 

Gains from the top 4 of the 5 biggest issues accounted for about 40% of today’s .83% advance. (upper window)

Gains of the sixth to the tenth ranked issues represented about 12%.

In gist, 7 issues delivered more than 50% of the day’s activities, and thereby, Phisix 8,037.

Put differently, the thrust to forcibly heave the Phisix above 8,000 has mostly emanated from a few issues being violently pumped.

By the way, SCC also hit a record high today.

As one would note in the lower window, the cargo of the PSEi’s PER distribution has been focused on a limited set of issues.

The PSEi’s AVERAGE PER was last at 20.8 while the free float weighted PER was at an exorbitant 1996 level of 25.45!

Back Up The Truck at Phisix 8,000?

Greed has come a long way.

I came across a sell-side article promoting the PSEi, despite being very expensive, as a buy!

As a side note, when experts talk about forward PERs expect these to (ritually) overestimate actual performance. Take for example HLCM. Given the infrastructure meme, has anyone predicted a crash in actual financial performance???  Yet, HLCM’s share prices, which apparently remains anchored on the infrastructure story, has hardly reflected on these developments/

Well, articles like these hardly ever say explain why ‘expensive’ merits a buy - of course, except for the overblown G-R-O-W-T-H story.

Such spins never dwell on WHY the PSEi has been ridiculously overpriced in the FIRST PLACE. In spite of evidence, extravagance has been assumed as an anomaly. Such is a manifestation of how theory and empirics have been overwhelmed by blind faith.

There hardly have ever been discussions of HOW marking-the-close PUMPS have contributed to the current valuation levels.

Barely will any of such articles deal with the repercussions of violent price pumps and of excessive speculations!

Additionally, buying very expensive stocks comes with GREATER risk of losses. But for them, risk has mostly been consigned to the dustbin. Free money is unbounded.

Also, the public has been made to believe that there are endless numbers of greater fools.

More importantly, for fiduciary entities, authors hardly ever disclose that buying lavishly priced stocks BENEFIT these institutions at the expense of their clients.

Finally, if there is one notable development, the surge to 8.000 comes with significantly DIMINISHING volume compared to 2016.

Construction BOOM? The Government’s Construction Material Prices Have Been On a Swoon, Why???

As a communication network, the market price system coordinates integrates and harmonizes the value judgments of the consumers, which represents demand, with the cost and revenues for producers in service of the consumers, which accounts for the supply.

Hence, the market price system serves as a very important guide to economic conditions.

The government’s Philippine Statistics Authority (PSA) released a few data last week relevant to the construction industry.

As a side note, though government price indices are hardly reliable because distinct products have different utilities for these to be aggregated or averaged, given that there is hardly any alternative, I will use them anyway.

 

Along with dwindling M3 growth, price indices of construction material retail and wholesale prices have been in a funk.

Construction material wholesale prices seem to endure a bigger price slowdown relative to the retail counterparts. June prices slowed to 1.4% from May’s 2.4%. Here’s the PSA: “Negative annual rates were still noted in the indices of cement at -1.8 percent; plywood, -0.9 percent; and PVC pipes, -0.2 percent.”

From a month on month basis: “The indices of the following commodity groups went down during the month:Cement (-0.5%), Lumber (-0.4%), Reinforcing Steel (-1.4%), Plumbing Fixtures and Accessories/Waterworks (-0.1%), Fuels and Lubricants (-1.5%).”

Cement prices have been falling at the wholesale level??? Why??? Too much inventories accumulated fromultrahigh expectations of a perpetual boom??? Or has such growth deceleration emanated from lackadaisical demand from retail, from the major developers and from the government??? If the latter, just what happened to the proposed aggressive infrastructure spending???

The retail segment of my question is answered below.

Construction material retail price (CMRPI) growth moderated less than the wholesale counterpart. The price index grew .88% in June from 1% in May. Like the wholesale index, since its recent climax last February, retail prices have been in a downtrend

Here’s the PSA: A negative annual rate was still observed in carpentry materials index at -0.7 percent. Moreover, slower annual mark-ups were registered in the indices of the following commodity groups: Electrical Materials (1.1%), Masonry Materials (0.2%), Plumbing Materials (1.8%), Tinsmithry Materials (0.5%)

 

The growth rate of the banking system’s loans to the construction industry increased to 20.85% in May from 19.12% in April. Though the growth rate has been in a cascade since 2013, which registered highs of over 50%, diminishing returns from the previous sharp rate of increases could be part of such dynamics.

By next month, the major cement manufacturers will be disclosing their performance for the second quarter. We should see if quarterly revenues of these companies will resonate with the quarter’s price activities.

This should be interesting.

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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