The last time that the Philippine Stock Exchange Composite
index (PSEi) reached an historic high was on April 10, 2015, at 8,127. It came near again on July 21, 2016, at 8,102. Most recently, everyone was hopeful another milestone would be reached, but on August 17, we fell short again with a daily closing of 8,072.
What is the problem with the PSEi?
While Mark Twain could have said—although he never did—“If you don’t read the newspaper, you’re uninformed. If you read the newspaper, you’re misinformed.” That is particularly true of financial journalism when it comes to the stock market. Now don’t misunderstand me. Local journalists that cover business do a great job of covering and reporting accurate information about companies and business conditions and developments in general. But when it comes to the stock market, there is a huge information gap between the reporting and the reality.
While comments about the stock market are giving all sorts of reasons the PSEi has not recently reached an historic high, no one has mentioned these facts.
There is much more to price performance than the PSEi. The PSEi that measures the price performance of the financial and banking issues has been at or above its previous historic high broken on April 5 for the past 16 weeks. This index reached that historic high at 1,904 and is now at 2,006, or five percent higher. The Property Sector index hit its historic high on June 8 and after a pullback has been near or above that high for a month. And I cannot find one reference to those facts from reading the stock-market reporting in the newspaper.
It is not a “stock market”. It is a “market of stocks” in the same way the PSEi is a calculation of 30 issues. Recently, there have been several stories about how big the market value or capitalization of SM Investment (SM) is at P1 trillion. But SM is not the biggest company on the PSEi: it is No. 3. As of last Friday the value of SM is P998 billion. But the value of all the shares of Manulife Financial Corp. and Sun Life Financial Inc. is P1.8 trillion and P1.1 trillion, respectively. Those two issues rarely trade.
The indexes are “weighted”’ meaning the movement of a large cap issue creates a larger movement in the index. The PSE Mining and Oil index should be the “PSE Semirara Mining and Power Corp. Index”. SCC has a 50.5-percent weight for that index with a market capitalization greater than the other 12 stocks combined.
There was a time when the PSEi was the same with PLDT Inc. (TEL) being the Emperor God of the PSEi. Now TEL has only a 4.9-percent weight, No. 9 in terms of index-moving power. SM is the “heaviest” at 11.5 percent, followed by Ayala Land (ALI) at 8.6 percent and SM Prime Holdings (SMPH) at 8.33 percent.
Look at the approximate combined PSEi weight of the issues controlled by two of the conglomerates: SM (SM, SMPH, BDO bank) at 25 percent, Ayala with Ayala Corp. and ALI at 22 percent.
However, there is one “problem” with the PSEi not reaching its historic high recently. The JG Summit conglomerate group has a combined weight of 10 percent, including Universal Robina (URC) and Robinson’s Land (RLC). The price of JG Summit, URC and RLC are all down 18 percent since May. That’s the problem and why we are not at an historic high.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.