PHILIPPINE stock-market investors have a bad attitude. By that, I mean they are like UFC champion fighter Ronda Rousey, who will not take nonsense from anyone, including Floyd Mayweather Jr. In the case of local Philippine Stock Exchange (PSE) investors, it is the government, stockbrokers, and economic and stock-market “experts” that are offering all the nonsense.
In 2015 the PSE was, in part, given back to local investors from the foreigners. Although it may be true that foreigners still do a significant, if not majority, amount of the daily trading on the exchange, this is what has happened.
We have been told that foreigners have been selling out of the PSE in the last months. That is true, based on what the net transactions of daily foreign buying and selling tell us. However, a closer look at foreign ownership reveals something different. If you compare the total percentage of foreign ownership of many widely held issues between the end of 2014 and now, you see a small change. One particular issue has seen its foreign ownership drop by 1.5 percent. Another blue- chip stock has actually had foreign ownership increase this year by 1.5 percent.
So, how can we say foreigners are net sellers of the PSE, when the percentage of foreign ownership has not changed?
Let’s say, a foreign fund owned a billion pesos of shares at a price of P100 and sold those shares. If later, they bought back an equal number of shares when the stock price was P50, they would be “net sellers” of P500 million. However, the percentage ownership of the company might not have changed at all, based on the number of shares outstanding and foreign owned.
For example, a company had 21- percent foreign ownership when the price was P4.50 and 21-percent ownership when the price recently went down to P3.40. Yet, net foreign selling in that six-month period was several billion pesos.
Unlike local stock-market “gurus and experts,” fund managers rarely average the purchase price down over the long term. While the “gurus”
may have an unlimited amount of capital to do that, funds allocate a certain percentage and amount of money from their total portfolio to a particular stock. They buy and, if the price goes down, they sell. They may buy again at a lower price and sell again if the price continues going down, looking to get in at the price bottom.
Investment funds are not going to put “fresh” money into a declining market. But that does not mean that they are going to walk away, as we have been told, just because prices are going down.
However, it’s always new money coming into the market that increases prices higher or money shifted out of the “losers” into the “winners.” But based on the total performance of the PSE indexes since April, new money has not been coming in, and it has primarily been the locals that have been pulling money out of the PSE.
At this point, the only way the local stock market is going to go up is if locals bring new funds back in, and that has not been happening. Filipino investors have not been buying the hype from the government, stock brokers, or the “experts” about economic fundamentals, corporate value, and how well the Philippines can handle “global headwinds.”
So, why aren’t Filipino investors excited about the prospects of stock prices going higher?
In my opinion, the government, in order to advance its May 2016 election agenda, is pushing too hard. If you elect a certain candidate, the Philippines will become a “First World Nation” may be a good campaign slogan. But do you really want to “bet” your money in the stock market for that “First World” promise to happen?
Reading the newspapers, you might think that all of the Philippines’s problems, like a major drop in exports and potentially lower economic growth, are caused by “external factors” like the lack of rain or problems in China. That may be true or not, but the “causes” of the potential problems are not important. You can ignore the causes of the problem but you cannot ignore the problem itself.
A slowdown in remittances, lower agricultural production and a piddling increase in government spending may result in lower economic and corporate profit growth. That does not give investors the confidence to run out and buy shares in a stock market that is in a declining trend. The government and the experts may tell me that Santa Claus is coming to town, but I want to see the big bag full of toys before I put my money on the table.
It may be a “bad” attitude not to trust Old Saint Nicholas, but that is what keeps you from losing money in the stock market.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.