Back to reality

2

Remember when the stock market analysts kept saying that the Philippine Stock Exchange would remain the best performing stock market this year, at least in Asia?

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Well, that seems to be more a dream now, as the PSEi ended the week with a drop nearer to the 6,000-point support level, while tracking the correction of the Dow Jones.

The PSEi dropping to 6,000 points seemed impossible when the stock market was riding high on wave of “hot money” from abroad and funds from local speculators, with some analysts saying that the PSEi hitting 7,500 points by the end of the year would be possible.

But the threat of the US Federal Reserve to taper its massive monthly bond-buying program, along with disappointing job growth figures from the United States, among others, applied brakes on the ascent of the PSEi.

The lower gross domestic product (GDP) growth of seven percent in the third quarter of this year, and projections that the fourth quarter economic growth will be even much lower because of the devastation caused by Super Typhoon Yolanda, were also not good news for the stock market.

The “Economic Insight: South East Asia” report of the Institute of Chartered Accountants in England and Wales (ICAEW) even said that Yolanda’s impact on the country’s GDP cannot be discounted. It said that it expects the economic growth in the latter part of the year to be weaker compared to the past quarters.

By 2014, the ICAEW said that the Philippines may grow by 5.8 percent or lower than the 6.5-percent to 7.5-percent growth target of the government.

While there are private banks and other institutions that still believe the Philippines can sustain a growth of between six percent and seven percent in the next few years, these projections are best taken with a grain of salt, especially by stock market investors.

What stock market investors should realize now are developments from abroad, and the effects of climate change do have a telling impact on Philippine equities. Gone are the days when analysts can say that local stocks are “immune from external shocks” or even future super storms.

This does not mean, however, that both local and foreign investors dump their stocks once the PSEi falls below 6,000 points.

For one, there is no threat yet of a financial or property bubble in the Philippines bursting, at least in the short term. And remittances by overseas Filipino workers remain healthy and will continue to support the consumer-driven economic growth in the Philippines, also over the short term.

So the PSEi sinking below 6,000 points doesn’t mean investors should panic. But falling below that level means investors and stock market analysts should stop being overoptimistic.

For sure, there are many people who are interested investing in the stock market, but making them believe that a quick buck can be made from investing in the bourse is the wrong way to attract long-term investors.

Perhaps the PSEi getting back to more realistic levels would show the investing public that the stock market isn’t like a casino after all, and that investing for the long-term is what the game is all about.

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2 Comments

  1. Irrational exuberance was fueled by Malacañang’s propaganda machine. Malacañang should take the blame for hyping up the growth narrative and creating unreasonable expectations. Here is a sampling of statements from president Aquino and his minions about the so-called “economic miracle” that was supposedly happening in the Philippines:

    “I won’t be surprised if we make it to the Guinness Book of World Records because of the strong performance of our stock exchange.” – PNoy, talking at the World Economic Forum at Davos, Switzerland last January, 2013.

    “The Philippines is an investment oasis in the midst of economic turmoil in the world.” – Malacañang spokesman Edwin Lacierda, Nov. 22, 2012

    “The strong performance of the PSEi is a validation of the Aquino administration’s bold reforms and tireless commitment to good governance that has resulted in growth.” – Malacañang Deputy Spokesperson Abigail Valte, January 7, 2013

    As people can see, Malacañang’s propaganda machine went overboard with the hype about the growth narrative and the booming stock market, deliberately omitting the fact that most of that “boom” was due to the excess liquidity emanating from world-wide monetary easing.

    Now that the chickens are coming home to roost, will Malacañang continue to crow about its deceptive economic achievements?