The Philippine PSEi 30’s Weekly Spike of 2.88%: a Dead Cat’s Bounce

  Never follow the crowd―Bernard Baruch 

The Philippine PSEi 30’s Weekly Spike of 2.88%: a Dead Cat’s Bounce

 

The consensus will attribute the GDP, inflation, and several earnings beats to the PSEi 30 weekly 2.88% spike.  In contrast, circumstantial evidence reveals that it was an organized and concentrated effort. 

 

I. PSEi 30 Outperformed Asia-Pacific 

 

Up 2.88% over the week, the principal benchmark of the Philippine equity, the PSEi 30, upstaged its regional peers.  Only Pakistan's Karachi 100’s 4.18% topped the PSEi.  

Figure 1 

 

Nonetheless, Asia-Pacific remains on a risk ON mood, with 15 of 19 national bourses closing higher, averaging a return of .8%.  South Asian benchmarks posted most of this week's gains, while ASEAN indices came second. (Figure 1) 

 

As previously noted, expectations of the Fed's "terminal rates" have fueled a frenzy in bidding up capital market assets.  Idiosyncratic factors in the domestic economy have been responsible for the asymmetric dispersion of gains. 

 

II. Risk ON: The Philippine Peso and Treasuries Rallied 

 

Nevertheless, it is necessary to analyze the market internals to discover if this week's "boom" has "legs." 

 

The Philippine peso rallied by .25%.  The USDPHP closed below 56 at 55.96 last Friday—a level last seen in August 2023.  The rallying peso dampens inflation expectations.   

Figure 2 

It was a mixed week for Philippine treasuries, with yields rising on BVAL T-bills and plunging on the notes (2-10) years.  Long-term yields also slipped. (Figure 2, upper window) 

 

These developments have led to a bull flattener—long-term rates falling faster than the short ones (compared to end-October).  It means the local treasury markets have partially shifted their concern from inflation to the coming rate cuts or "pause."  (Figure 2, lower graph) 

 

A bull flattener could help the stock market in the short run.  But declining rates and/or central bank rate cuts are usually in response to a substantially slowing economy or a recessionary environment.  And such an environment wouldn't be favorable to the stock market.  

 

III. PSEi 30: 64% of this Week’s Gains from End-Session Pumps; Economic Implications 

 

Beyond the headlines, one can interpret this week's outperformance by the PSEi 30 as an outcome of non-market forces.  Or, gains by the local benchmark had been forced and artificial.  

 

Figure 3 

This week's pre-closing pumps totaled about 110.39 points or 64% of the week's advance of 172.62 points or 2.88%.  Stunning. (Figure 3, upper graph) 

 

Since the stock market represents titles to capital, price pumps or dumps spur distortions or mispricing that send false signals to the economy.    

 

As such, the extended period of distortions results in the accumulation of misallocation of resources or a maladjusted (bubble) economy. 

 

It is also a bad sign for governance because it shows the biases of authorities in protecting vested interest groups rather than preserving the integrity of a market institution.   

 

Such developments also expose the inherent weakness of extant regulations, subjecting watchdogs to "regulatory capture," which means that if certain groups can "game" the market, why wouldn't they apply the same to their firms?   Doesn't this also reflect the surfacing of corporate aberrations, such as how and why one of the biggest telco firms, after it declared a 4-year "overbudget," got away clean?  

 

It also showcases the inflationary psychology expressed as the public's increasing high-time preference (or short-term orientation) of permitting these anomalous transactions—metastasizing these into a market norm. 

 

Yet, the growing popularity of top-down/centralization workaround of the financial economy erodes productivity and savings.  

 

So, the elites work on camouflaging these by inflating economic and financial statistics, "gaming" the financial markets, and imposing controls on "real" market prices (e.g., SRPs or price caps)—which at the day's end transforms into anti-competition moat.  

 

IV. More Circumstantial Evidence of Concentration and Organized Pumps: Volume of Top Brokers and Top Traded Issues 

 

In any case, this week's surge was, ironically, accompanied by volume stagnation.  The average daily mainboard volume (MBV) tanked by 14.33% to Php 3.075 billion--below the 2017 lows! (Figure 3, lowest chart)  

Figure 4 

 

An average of 61.3% of the daily MBV were from the top 10 brokers, where cross-trades from these accounted for about 12% (my estimates).  The decreasing volume has prompted a rise in the share of the top 10 brokers. (Figure 4, topmost chart) 

 

The top 3 largest market cap (Sy group of companies) accounted for an average of 29.9% of the MBV. The share of the three companies has been on a slo-mo uptrend since 2021. (Figure 4, middle window) 

 

The top 20 most actively traded issues represented had an average of 82.9% of the MBV.  It has the same uptrend dynamics as the top 3.  

 

Again, the slowing volume has resulted in the rise of trades in the elite group (mainly from the top 10 market cap issues). 

 

In the face of diminishing volume, the growing share of the elite brokers and top traded issues highlight the mounting concentration of transactional activities.   

 

V. Dead Cat’s Bounce: Divergent Advance-Decline Spread, Skewed Distribution of Market Cap Weights and Counteracting Role of Foreign Money 

 

Further, despite the headline spike, the advance-decline spread of the PSE was (believe it or not) a NEGATIVE 23 (416 advancers, 439 decliners, and 241 unchanged)!   

 

This data tells us that there was little diffusion into the broader market. (With that volume, why would it?) The data also suggest that retail was largely absent in the runup.  

Figure 5 

Members of the PSEi 30 benefited from last week's pump, with 22 of the 30 issues up.   But again, the top 10 market cap issues had the most gains this week.  (Figure 5, upper graph) 

 

Because of these, the skewed dissemination of gains only widened the differentials between the PSEi 30s largest market caps and the benchwarmers.   

 

As of November 10, the top 5 free float market cap issues command an incredible 47.2%, while the biggest 10 group holds 69.6% of the PSEi 30's free float weight distribution.  The PSEi 30s market cap share distribution mimics the "Power Law." (Figure 5, lowest chart) 

 

End-session pumps only highlight such organized and concentrated trades by the local version of China's "national team."  As a caveat, China's NT intervenes within the intraday session and barely at the closing bell.   

Figure 6 

 

Foreign money has typically counteracted these organized and coordinated pumps. (Figure 6, upper graph) 

 

But this week's net Php 86.9 million inflows suggest that foreign funds became their ephemeral ally.  

 

Unlike in the past, foreign flows represented non-resident funds.  In contemporary times, flows from resident-owned companies domiciled abroad or through some of their international partnerships could be categorized as "foreign."    

 

There you have it; last week's stock bidding ramp, backed by circumstantial evidence of concentrated and organized pumps in the face of decaying volume, barely brings about sustainable bullish signs. 

 

Seasonal factors may help, but unless there will be improvements in savings extrapolated into volume or market liquidity, this week's spike represents an oversold, dead cat's bounce.  (Figure 6, lowest graph)