We read about the amount of money Asians spend on skin whiteners and other products and treatments to achieve the Western ideal of beauty. According to a marketing study, 4 out of 10 women surveyed in Hong Kong, Malaysia, the Philippines and South Korea used a skin- whitening cream. Whitening creams account for half of the $320-million market for facial creams in Thailand.
However, it is not only the “beauty market” that is obsessed with white skin. This past week the Financial Times published an article titled “Fund managers turn their back on the Philippines.” From the panic-driven commentary from local pundits, the title might have been “Skin Whitening Creams Banned in Asia.”
Every nation and stock market in the world has this sign hanging on its front door: “Foreigners Welcome. Bring Your Money.” On the New York Stock Exchange, just a decade or so ago, foreign ownership was minimal. Today, foreign money owns at least 25 percent of all NYSE shares.
Further, the trading activity of foreigners is significant. About 50 percent of all trading on the Philippine Stock Exchange (PSE) is being done by foreign money. But what is never mentioned when there is foreign net selling is, to whom are the foreigners selling?
If foreigners sold P2 billion more than they bought, that means that local investors bought P2 billion more than they sold. Stock market trading is a zero-sum game. For every share sold, there has to be an equal amount bought.
According to the Financial Times, “Fund managers have slashed their exposure to the Philippines by more than half in the past three years.” Also, “The retreat has been broad based, with 83 percent of funds cutting their exposure to the Philippines over the past year.”
If you compare the PSE composite index (PSEi) between now and both three years and one year ago, the index is almost at the same level. So maybe they made or lost a little money if the investors simply bought and held.
However, the article goes on to report, “Only 58 percent of funds now have any holdings at all in the Philippines, the lowest level since early-2012.”
From mid-2009 to the end of that year, the PSEi gained about 25 percent. In 2010 the PSEi was up about 40 percent. The stock market was relatively flat in 2011. The year 2012 was strong with a 35-percent improvement.
If foreign fund holdings went down to a low level in 2012, then theoretically foreigners started selling perhaps near the 2012 top.
But a major move on the PSEi came from 2012 to the recent historic high this past January 2018 with an approximately six-year gain of 46 percent. Perhaps the foreign money exited at the high at PSEi 8,500. Logic also assumes that the foreigners invested as the market went higher, which makes sense.
However, there is a tendency for foreign money to be big buyers at the top and big sellers at a bottom. Over a 12-month period, foreign buying was highest in December 1996 and January 1997 when the PSEi topped out. The same situation occurred leading up to the 2009 bottom.
Foreign funds are more cautious than the average investor, not wanting to be the first in or the last out. Therefore, if foreign funds are not now in the PSE, that may be the most positive sign that our stock market is going to move higher over time as it started doing in 2012.