Both of the nation’s two major telecommunications companies, Globe Telecom and the Philippine Long Distance Telephone Company (PLDT), made news last week with competing offers of “free” internet services (under certain conditions, of course). But this week they are making news for an entirely different reason: The surprisingly weak performance of both stocks on the local market.
It was something I first noticed last week, and while I was gently chided—perhaps justifiably so at the time—for getting overexcited about it by a friend of mine who is a titan in the investment banking industry, I’m apparently not the only one. Late Monday night, GMA-TV posted an article on it website, musing whether PLDT’s announcement of free internet for its Smart, Talk ‘N’ Text, and Sun prepaid cellular subscribers might have backfired on the company.
The circumstances that have attracted some attention are these: On September 4, PLDT shares closed at a high of P3,460; the stock’s climb to that point had been driven largely by the revaluation of the MSCI Philippine Index, which had made PLDT the biggest component with a market capitalization weight of 11.7 percent, as well as the general optimism that has been driving the market for most of this year. Between September 4 and September 29 (this past Monday), PLDT dropped steadily—it only posted a gain or was unchanged on four out of the 16 trading days in that period—to close at a low of P3,090, a total decline of 370 points, or about 10.7 percent in a little more than two weeks. Of those 370 points, 42 of them were shed on Friday, September 26, the day that PLDT Chairman Manuel V. Pangilinan made the announcement of the free internet offer, with a further 66 vanishing on Monday, September 29. PLDT’s share price did recover slightly the following day, buoyed by the end-of-the-quarter window-dressing that typically occurs around that time of year, but whether that was a sign of a bottoming-out or just a short-lived pause in the downturn remains to be seen.
Globe’s share price performance has been even more disappointing. On August 20, Globe closed at its high point of P2,008. It had an erratic run after that, dropping at first and then recovering to P1,960 on September 8; since then, however, it has been all downhill, with the stock closing at P1,623 on September 30—a decline of about 17.2 percent in two weeks, and 19.2 percent in a little more than a month. On September 26 and 29, following the PLDT announcement (which Globe countered by offering an extension of its “free Facebook” program for their prepaid subscribers), Globe lost a total of 99 points; unlike PLDT, however, the general upbeat mood of the market on the last day of the month didn’t rub off on Globe, which lost another 44 points on Tuesday. Globe did at least start October on a more upbeat note, picking up 38 points in what an analyst suggested was mere bargain-hunting on Wednesday, while PLDT continued to slide.
Last Friday, some analysts offered the opinion that Globe’s and PLDT’s downturns on that day could have been related to the PLDT announcement: Globe shareholders might have been concerned about the company losing subscribers to its competitor because of the internet offering, while PLDT shareholders might have worried that the company’s revenues would decline during the offer period up to November 30. In the GMA article on Monday, the suggestion was made that the Philippines’ chronically snail-paced internet speed has something to do with it; the apparent rationale was that a large number of new subscribers would further stress the system and slow down performance, eventually turning off customers and causing the companies to suffer lower revenues.
None of those explanations, however, account for the sustained drop in the two telecom stocks, and no other shares in the PSEi have had a similar performance during the same period; most have tracked the performance of the market overall, which has been basically flat with a moderate upward bias.
So what is happening to Globe and PLDT? Here’s a possible explanation, which if true has implications for the entire stock market: Over the past couple of years there have been some analysts who have made the assertion that Philippine equities are overvalued, with a few even going so far as to argue that the country is experiencing, or at least approaching, an “asset bubble.” These arguments are usually quickly dismissed by analysts and market players here as unrealistic and alarmist, and the general behavior of the market—rising, but not at a runaway pace—tends to support that view.
But the recent share performance of PLDT and Globe is puzzling. Here are two market stalwarts, very sound companies which happen to comprise the greatest part of what is a booming business sector, in a market that is performing admirably overall, and their share prices are tanking for no apparent reason.
My investment banker friend might object to that word—“tanking”—as being a bit strong, but I think it’s a fair description; if I’m an investor, and my holdings lose 10 to 17 percent of their value in two weeks, I’m going to be alarmed, particularly when there is no obvious explanation for it.
What may be happening—and the fact that it is happening to these two particular companies at the same time is circumstantial evidence for it—is that the correction that those who argue that an “asset bubble” exists say must happen eventually is in fact actually beginning to happen. If that is true, then the decline will spread through the whole market, because while stock investors judge individual stocks on the underlying financial fundamentals of their issuers, the whole market moves based on a decision-making process that is best described as “throwing one’s hands in the air to try to catch the vibrations.”
Of course, none of that may come to pass; Globe and PLDT may have just coincidentally both endured an extended adjustment at the same, may have bottomed out by now, and will return to a path that more closely resembles that of the rest of the market. But the recent circumstances are odd enough that they suggest that shouldn’t be the assumption, and that the two telecom giants, as well as the market as whole, probably should be watched closely over the next few weeks and months.