Make a mental note about the following thoughts regarding the Philippine stock market.
The Philippine stock market is very expensive and highly overvalued compared with other regional markets. Government policies and politics are damaging the Philippine economy and will eventually cause the stock market to fall significantly. Philippine stock prices are being fueled by unstable speculation and “hot money”.
If you strongly agree with those statements, please do not read any further and turn to another section of the newspaper. I’ll wait. Thank you.
Good. Now you and I can talk. If you are an investor in local stocks, it is in your best financial interest that anyone who holds those opinions must not be challenged to change their view. We need as many people as possible to believe that stock prices are not going to go up. When it comes to stock prices, the majority is always wrong.
This is not about what is known as being a “contrarian” investor. Contrarian investing is a strategy of buying and selling against the general investor sentiment. This “general investment sentiment” has nothing to do with you making money buying any particular issue. Once again, it is not a “stock market”; it is a “market of stocks”. You can have a crashing bear market and still have big profit winners.
However, the general investor sentiment does influence the general direction of the market. If you keep a close eye on the sentiment, it is fairly easy to predict what the broad market will do next.
When the Philippine Stock Exchange Index (PSEi) first blasted through 7,000 in early-2013, this was the beginning of a new and glorious dawn. Except, the PSEi turned around five weeks later and retraced 22 percent. That was not profit taking. That was the majority of opinion being wrong and then running away.
The PSEi tried 7,000 again in late- 2014. It was a hesitant break, as investors were scared. But, in April 2015, PSEi 8,000 was broken, and this is what everyone had been waiting for. PSEi 8,000 lasted a whole two weeks. Fast forward to July 2016 and, this time, everyone knew 8,000 would be only a stepping stone to 8,500 and beyond. This time, less than two weeks passed before 8,000 was lost.
Sentiment turned negative to the point that the PSEi fell to the 6,500 area.
In May 2017 the index only briefly touched 8,000, and again in July,
because everyone knew that this was a false move, and no one wanted to get caught holding the bag. Expectations for a major pullback were strong. But prices did not pull back. For three months the PSEi failed to break and hold 8,000, which, in most investors’ minds, was clear proof that the market could not, would not break 8,000. And then, five weeks ago, the market virtually skyrocketed through 8,000 as if it were not even a bump in the road.
Through all of the drama that 2017 offered, two-thirds of the issues on the PSEi are up more than 20 percent this year already. One-third increased by 30 percent or more. If you looked at majority sentiment during the past 10 months, it has been that the local market is “too expensive” with the background of a “bad government”, and that only hot money is interested in the local stock market. Please help keep the doomsayers whining and moaning.
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.
1 comment
The rising affluence of the Philippines anchors the growth of the PSE. The Investor base is increasing and the PSE is no longer as dependent on the “hot money” it once was. While nobody can predict the market, we do have strong opinions in the companies we have invested in. Rational Investors with long term investing horizons. The rise and fall of the market and its daily gyrations is part and parcel of the Market and should be viewed as opportunities for the enterprising Investor.