Interesting financial sector looms
DEN SOMERA
It was a tough week for everyone in the market, even for players in the virtual stock trading challenge. The benchmark Philippine Stock Exchange Index (PSEi) fell to 7,598.64 with a big weekly loss of 257.07 points or 3.27 percent.
Soaring inflation and volatile exchange rate were largely blamed for the market’s fall. Local and foreign investors alike were particularly alarmed by the spiral in the cost of goods and services and the weakening of the peso.
The report was issued by the Philippine Statistics Authority (PSA) last Wednesday. It said inflation, or the increase in the prices of basic goods, rose by 6.4 percent in August, thereby raising concerns on the government’s ability to fulfill its promise of economic growth.
The rate was the economy’s fastest in nine years, exceeding the government’s upper forecast of 6.2 percent and certainly way above the four percent upper target for 2018.
Because of this, the government may resort to another hike in interest rate, which the BSP may take up in the next monetary policy meeting scheduled on September 27.
Higher interest rates tend to reduce inflation. It likewise reduces disposable income and limit the growth in consumer spending. It will slow down the economy’s rate of growth, on the other end.
Among its ASEAN neighbors, the country reportedly has the highest inflation rate of 6.4 percent. Records show Indonesia’s inflation rate increased within the same period by 3.2 percent, Thailand by 1.2 percent, Malaysia by 0.9 percent and Singapore by 0.6 percent.
Compared to Vietnam’s 4.5 percent for July, the Philippines’ inflation rate of 6.4 percent was simply towering.
To recall, the Philippines’ inflation rate at the start of the present dispensation could be found within the middle range of inflation rates among the ASEAN countries.
This latest spike has now put at risk the country’s attractiveness among investors, both local and foreign.
Inflation could drive borrowing rates higher. It can weaken corporate profits and, in turn, drive down stock prices and, ultimately, the local economy.
As of now, the issue on inflation has caused restiveness among the populace which could migrate into a political issue. At the moment, the issue on inflation is singlehandedly placing pressure on the administration’s political stability.
Along with the country’s weak foreign exchange rate performance that will increase the weight of external debt, the government’s financial affairs are also increasingly becoming a cause of concern by investors.
How good and how fast the government could put an effective solution to these growing financial and political concerns will very well make or break its promises to grow the economy and our investment attractiveness.
Week 27 overall results
The two most active players in the game were badly hit by the market’s further fall last week. However, two players surprisingly bucked the trend. These trend were HRB2015 and Small Time Trader.
The price of HRB2015’s only stock exposure, Manila Electric Company (MER), further improved to P380.00 per share that his return on investment (ROI) performance rose for the week by 0.42 percent to 102.40 percent.
With Small Time Trader’s bold move to bolster his performance by deploying a big portion of his available cash to make a quick buy-and-sell trade in Filinvest Land, Inc. (FLI), which also made a good performance for the week, he landed third place in the leaderboard with an ROI of 98.70 percent, up 2.09 percent from the previous week.
Play Hard was Week 27’s “heartbreak kid.” From third place in Week 26, he landed on sixth place with an ROI performance of 92.46 percent, down with the biggest loss among the players of 7.37 percent compared to the previous week.
Most of his remaining stock picks were badly affected by the market’s fall. The price of all his stock positions fell last week. Eagle Cement Corporation (EAGLE) and Bloomberry Resorts Corporation shares dropped by as much as 20 percent in value while his positions in Metropolitan Bank and Trust Company (MBT) and San Miguel Food and Beverage, Inc. (FB) fell by as much as 10 percent. His position in SM Prime Holdings, Inc. (SMPH) and Ayala Land, Inc. (ALI) also fell by six and five percent, respectively.
Dondee Prime, St. Michael and Dud67 sustained losses again for remaining passive and without any strategic move last week.
Dondee Prime took fourth place with an ROI of 96.55 percent, down 0.74 percent. St. Michael followed on fifth place with a performance of 93.05 percent, with the third biggest loss of 3.17 percent from previous. Dud67 remained last at 58.65 percent ROI, down 0.52 percent from the previous level.
Pixiu, who remained in the number one spot in the leaderboard, was the second biggest loser for the week. Her performance standing dropped to 118.57 percent, down 5.73 percent from the previous figure.
Pixiu somehow failed to make a follow-up “buy” order in Italpinas Development Corporation, which was last week’s number one top price gainer at 25.14 percent. She also failed to look at the price chart of Asiabest Group International, Inc. (ABG). She made money out of trading ABG before and it turned out to be the number three top price gainer last week at 18.60 percent.
Below are the details of their overall transactions for Week 27, covering the period September 4 to 7, 2018:
Bottom line
With last week’s trading results, the market has gone down substantially, again. By all indications, market confidence continues to be bad and low. All counters of the market ended in the red and the PSEi and All Shares index still traded at the P/E multiple of 18.51x and 18.97x, respectively.
Trading below at 14.58x, however, was the financial sector. Moreover, total value turnover seems to be getting bigger. Average daily value turnover for the week rose to P6.09 billion despite the selling pressure from foreign investors. Foreign investors were net sellers last week and local punters absorbed their volume.
These developments are significant. With the possibility of another interest rate increase to curb inflation, this sector could soon become interesting.
If I may further recommend, apply the bottom-up investing approach to help you find the possible candidates. Remember its quantitative and qualitative parameters.
Den Somera is a licensed stockbroker. The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. E-mail address of the writer is den.somera@manilatimes.net
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