During a breakfast meeting this past Sunday, a gentleman said that we are basically back to the same level we were in 2013.
The yearly high in 2013 saw the Philippine Stock Exchange Composite index (PSEi) at around 7,000. We are now trading at about 7,500. However, consider that the market went down to the 6,000 level in 2013 and then returned to 7,000 in 2014. Since then we have traded in the range from basically 6,800 to 8,000 with one six-month period at the end of 2017 and beginning of 2018 when we pushed to 9,000.
But he does make a valid point. From 2014 until now, the long-term “average price” of the PSEi is 7,400, so therefore we are not much changed from 2013 despite all the ups and downs in the past seven years. Why is that?
We are constantly looking both on a short- and long-term basis for the factors—and preferably that one magic factor—that moves stock prices. If we could just nail down what that parameter is, then we could be maybe near 100 percent accurate in forecasting where stock prices are going to go in the future.
We might say that the past seven years have been tumultuous and that is the reason stock prices are not that much higher. But when has there ever been a seven-year period that was all peace and harmony? The Dow Jones Industrial Average is up 2,800 percent in the last 100 years, which has not been a period of calm. But then war, plague, volcanoes, and every other disaster that man and nature can throw is not the only thing that moves stock prices, of course.
Maybe we need to go back to basic economics. Shouldn’t stock prices simply reflect the broad economy? In that case maybe the stock market its broken since the Philippine economy is more than 20 percent larger than in 2013, even accounting for population growth. Why aren’t stock prices 20 percent higher?
Perhaps the Philippine government is to blame. Except while the foreign debt is about the same, the debt-to-GDP is 20 percent lower. Foreign-currency reserves are 10 percent higher. The budget deficit in relation to the GDP is worse. But then again, government spending has more than doubled since 2013 and that is good for economic growth.
Interest rates are about the same as in 2013, as is inflation. Consumer confidence was negative in 2013 and is now positive; business confidence is almost identical as back then. Unemployment, poverty, and almost every quality of life measure is better now than in 2013. Even such very subjective measures as ‘self-rated’ poverty and hunger are the same or have improved since 2013.
Then we need to look outside our shores. What about oil prices? In 2013, Brent crude oil was $114 per barrel. It is now $54. Economic growth in the US was almost zero in 2013; it is now about 2 percent. Global GDP growth—not counting the nCoV fallout—will be about the same in 2020 as it was in 2013.
It must be that we have a negative attitude today. But consumer confidence was negative in 2013 and is now positive, business confidence is almost the same as back then. Maybe there are no external parameters that can forecast the future. Maybe the best we can do is simply follow the trend.
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.