• No such thing as the ‘Aquino Effect’ (and that’s the whole point)

    Ben D. Kritz

    Ben D. Kritz

    LAST Tuesday, President B.S. Aquino 3rd made his third visit to the Philippine Stock Exchange, taking advantage of the PSEi’s advance past the 8,000-point barrier to pat himself on the back for creating the circumstances for steady market gains.

    The very next day, Wednesday the 15th, the stock market drove into a ditch, dropping 151.18 points. In the five trading days after Aquino’s visit (through Tuesday the 21st), the PSEi lost 209.55 points, or about 2.6 percent.

    The apparent negative reaction of the market to Aquino’s attention has happened before; I called it the “Aquino Effect” in a Twitter post, a comment that ended up being quoted in a couple of different newspapers, to my pleasant surprise.

    That suggested to me that all I had done was identify and name a common perception that people already had, and that made me curious: Is there really such a thing as the “Aquino Effect?”

    gThe Aquino Effect is a postulate that any attempt to attach himself to the success of the local stock market on the part of the President will result in a market decline. Aquino visited the stock exchange three times: April 14 (last Tuesday) was the most recent, the first was on September 14, 2010, and the second occasion was on March 6, 2012. In addition, on Dec 3, 2012, Aquino decided to just phone it in, issuing a statement via the palace communications team.

    On each occasion, the PSEi had either just passed a milestone or was about to do so.
    In September 2010, the index was approaching 4,000 points; in March 2012, it was getting near 5,000 points; in December of that year, the 6,000-point barrier was in sight; and of course most recently the market momentarily broke through the 8,000-point ceiling. On each occasion, the message from the President was exactly the same: “Good governance, level playing field, ‘straight path,’ I, I, I, me, me, me.”

    The record of PSEi closings, however, shows that the market did drop twice on the day after an Aquino visit—in March 2012 and then again last week—but it also gained twice before.  On Sept 15, 2010, the market picked up a modest 5.19 points, and on Dec 4, 2012, it gained a rather more impressive 33.58 points. The declines, however, have outweighed the gains; on March 7, 2012, the market dropped 16.32 points, and of course, there was last Wednesday’s 151-point meltdown.

    There is no Aquino Effect.

    Of course there isn’t; it’s a ludicrous idea, and a slapstick abuse of dimensional analysis. And that is precisely the point.

    B.S. Aquino 3rd has about as much impact on the stock market as your Mom does; if your Mom happens to be an investor, or a key person at a listed company, then she has more. It amuses us to think that the market reacts badly to being served another heaping helping of hubris from the chief executive, but the reality is, the stock market is driven by a number of forces completely beyond even the government’s indirect control.

    The stability of Philippine companies, at least the ones that make up the main Philippine Stock Exchange index, comes from two things. First, from their being able to hold on to huge shares of their respective markets for an apparently infinite length of time thanks to an overprotective economy—which Noynoy Aquino did not create, and certainly did nothing to liberalize. Second, Philippine blue chips keep the bulk of their stock shares secure by limiting their public float. Among the 30 companies that make up the PSEi, the largest proportion of publicly-floated shares belongs to International Container Terminal Services Inc. (ICTSI) with 51 percent; the lowest, Meralco, with just 14 percent (the minimum required is 10 percent).

    Having the entire economy controlled by an extremely exclusive club of rent-seekers may be bad for society, but it’s a happy state of affairs for equity investors, and is essentially responsible for the stock market’s long, fairly steady climb. This has allowed the market to largely shrug off effects from overseas. Indeed, the market does react to things like changes in monetary policy in the US or Europe, big changes in commodity prices, uncertainty caused by armed conflicts, and the other sorts of things markets are supposed to react to; the magnitude of those reactions, however, is always rather small. It has gotten to the point that business reporters in the stock market beat now get excited when the market moves more than a percent in either direction, which is something that most other stock markets do on a regular basis.

    There is no guarantee the Philippine stock market will continue to be a good investment for any certain length of time; any market that derives its core strengths from conditions that are ultimately unsustainable—even if they do last for a very long time—will eventually collapse under its own weight if it does not evolve. Predicting when that might happen for a market like this one is a bit like trying to predict an earthquake, so for the meantime, investors can enjoy themselves—safe in the knowledge that just about anything the president might conceive of doing will be of no concern whatsoever.



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