Yet blow the winds of change


WHAT makes listed companies and stock markets interesting, from both national and global perspectives, is that they serve as windows to the economic and political conditions of a country, even if both the neoliberals and those leaning left on the political spectrum consider corporations and exchanges as playthings and playgrounds of the rich capitalists and the bourgeoisie.

That is why share prices get depressed by political and economic uncertainties, be they global or domestic, like the prospects of higher interest rates in the United States that hounded markets worldwide through most of 2016, and getting high on upbeat developments even if they haven’t yet materialized; for example, the Philippine economy growing by 7.1 percent in the third quarter of last year. In other words, that’s where the speculative aspects of the market come into play—buy or sell on rumor.

It is no surprise that in the first week of trading this year the benchmark PSEi, the barometer–so to speak-of the Philippine Stock Exchange (PSE) has gained nearly 6 percent to 7,248.20 on Friday, from 6,840.64 on December 29, the last trading day of 2016.

That was quite a feat, considering that through the ups and downs of last year, the PSEi ended down 1.6 percent from 6,952.08 on December 29, 2015.

Stock brokerages are one in attributing the phenomenon to foreign buying. In fact, foreign fund managers have been stealthily placing more buy orders than selling since the last two trading days of 2016, according to AB Capital Securities; and the online brokerage COL Financial has labeled what has been happening as “rotation of funds.”

First and foremost, foreign fund managers are back after selling off Philippine stocks through most of the second half of 2016 in the heat of a shakedown by prospects of higher returns in dollar assets as the US Federal Reserve signaled a lift-off in yield rates that actually happened in mid-December.

But a closer look at the actual rise of 25 basis points wasn’t that high to warrant capital flight back to the US, since it merely buoyed US policy rates to 0.5 to 0.75 percent a year, compared to 5.95 percent in the first four trading days of 2017 on the PSE from January 3 to January 6. Considering such a disparity in return on investment, no fund manager in his or her right mind would not rotate money back to the Philippine market.

But wait, before throwing caution to the winds, be forewarned that not all is well on the financial front because of political and economic risks. Citing the perspective of Teneo Intelligence analyst Bob Herrera-Lim, Barron’s Asia has identified three particular developments that could derail the current market uptrend in its Philippines 2017 outlook: 1) the Duterte administration’s tax reform package pending before the Congress; 2.) the retirement of Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr.; and 3) constitutional change.

Mr. Duterte’s economic managers have assumed that the tax reform package, seeking new and higher taxes on transport and petroleum products, would be approved by both the House of Representatives and the Senate in order for the administration to fund an ambitious infrastructure program as a way of priming the economy to meet its growth targets.

The proposal is now facing resistance from the minority bloc as the economic managers failed to anticipate the rise in prices of petroleum products after the Organization of Petroleum Exporting Countries (OPEC) and a handful of non-OPEC members agreed to cut their production.

In the case of Mr. Tetangco, who will retire in July 2017, Teneo Intelligence has warned that replacing him with a political appointee and not a technocrat would be the President’s “first major intervention into the country’s economic institutions and be negative for perceptions of governance.”

On constitutional change, the shift from a unitary form of government to federalism “could become a more important–and distracting–issue by late 2017 or early 2018,” Lim noted.

The winds of change will continue to blow, and foreign and domestic fund managers will continue to place their funds where the returns on investment can be maximized for their clients and their own money, come hell or high water.


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