The Philippine stock market was a man-made disaster for most of 2015. From April until the end of the year, the Philippine Stock Exchange Composite Index (PSEi) dropped about 15 percent. That did not seem fair, as economic growth was strong throughout 2015.
Then, the market started perking up in January 2016 and gained back all of its losses by the end of July 2016. The PSEi reacted well—at least for a couple of months—to the election of Rodrigo Duterte as Philippine President. But, if that was the honeymoon, it did not last long. The PSEi went all the way back down to its 2015 low, perhaps because of the uncertainty with the election of Donald J. Trump as president of the United States. Philippine economic growth also tapered off through the last two quarters of 2016.
However, 2017 has been virtually a one way market to the upside with the PSEi and the subsector indexes performing extremely well as you can see. Leadership has been broadly based with the financial, property and the service sectors strongly outperforming the blue-chip index and the broad market all-share index. The mining and oil issues are still caught in the confusion of if and how the Philippine intends to exploit its mineral wealth.
While economic growth was lower in 2017 than in 2016, the stock market still performed well. However, the Philippine peso/US dollar exchange rate has been terrible if you think that an indication of a nation’s economic health is a strong currency. That is not true, but try telling that to the pundits.
Perhaps to better understand how the investment world works, think of thoroughbred horse racing. The horses are all different, from the color to the sire and dame for each entrant. Each has its own strengths and weaknesses, with some starting out slowly and finishing with burst of speed. Other horses refuse to ever take the lead, preferring to run behind the leader until pushed by the jockey to win the race.
The race track is the only common denominator. Sometimes it is dry and fast, and sometimes it is wet and muddy. Certain horses that do well on a fast track can hardly run when the ground is wet and slow. Other horses ignore the track altogether. Think of the race track as the external elements, such as economic growth, politics and external
Sitting in the grandstand, bettors have all the same information that they can use to place their bets. Of course, there are certain punters that like to bet on the only mare or filly running against a bunch of stallions. Others like to put their money on only black, grey or whatever colored horse. But the favorite in the race is determined by the horse that receives the most money betting that it will win.
In 2017 the favorite investment was the Philippine Stock Exchange (PSE). As of the end of 2016, there were 773,187 active stock-brokerage accounts on the PSE, and they put their money in the market. The other “horses”—like condominiums and siomai kiosks—were not the favorite bet. That is why we have seen a 20-percent increase in the prices of the PSEi-listed issues.
In fact, of the 30 PSEi issues, some turned in amazing returns. Ayala Corp. share price has gained more than 35 percent so far. LT Group Inc., SM Investments Corp. and International Container Terminals Inc. are all up more than 40 percent. Megaworld Corp. is the big winner so far, gaining over 50 percent.
Why did investors bet so heavily on the PSE in 2017? One factor was the psychological realization that the Philippines would “survive” both Presidents Duterte and Trump. Further, in spite of continuing controversies, Duterte’s approval rating has been strong. While a weakening peso has been a nagging concern as to its impact on both inflation and spending, there has not been any significant negative effect on economic growth or—more importantly—corporate profitability.
This year of 2017 has been one of changes around the world and a year of geopolitical turmoil from North Korean nuclear weapons to the Chinese military buildup in the West Philippine Sea (South China Sea). While you might think that this all should have a negative effect on the stock market, in fact the instant liquidity—being able to go back into hard cash—is a critical reason to invest in stocks when things might go sour at any moment.
As we come down to the closing days of 2017, the stock market has lost some upside momentum after its historic monthly closing high in October. It is not so much that money has come out of the market, but that fresh money has not come in. That sends prices lower even more than selling pressure.
Third-quarter corporate earnings are within expectations, and economic growth for that period was stronger than expected. The Philippine peso has not fulfilled the gloom-and-doom predictions and seems to have stabilized. The US Federal Reserve has not shown any signs of crashing the global financial markets by expected interest-rate increase. So, what might 2018 hold for the PSE?
It is unlikely that 2018 will start off with a bang and a boom in stock prices as it did in 2017. It is possible but not probable. Investors need a little time to digest the gains of 2017. That is normal with the PSEi bumping up against an historic high. But do not expect this to last long. As in 2017, the Philippine stock market is still going to be the best invest vehicle for profit making. The best is yet to come.
E-mail me at email@example.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.
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