THE global financial and asset markets are in turmoil and there is little reason to believe that condition is going to change any time soon.
Currencies are in upheaval by the decision of the Swiss National Bank to let market forces determine the Swiss franc exchange rate while other central banks are holding firm to a manipulative policy. The price of crude oil is very volatile with the bottom not yet confirmed even as prices have rebounded almost 10 percent for its recent low.
Gold is up $100 and over 8 percent from recent lows even as food commodity prices drop and contrarily, US retail food prices hit historic highs.
The question as to how this all is going to affect the Philippine economy and the Philippine Stock Exchange is difficult to predict not unlike the weather. But as with the weather, all you have to look for are the signs.
You cannot have rain if there are not any clouds. You cannot have a strongly growing economy and stock market without inbound money flows.
If money flows into the Philippines from all foreign sources, the stock market will go much higher. If local companies stick to their 2015 capital expenditure spending plans, the economy will grow at a faster rate than the recent lowered expectations.
All the brilliant forecasts for 2015, including mine, have been challenged by the events in the last two weeks.
The fall of the euro and the potential for a potentially massive money printing policy by the European Central Bank (ECB) throws the forecasts about the European Union economy in grave doubt. The current overhang in Europe is the Greece question. The ECB and Germany are downplaying the potential of Greece leaving the euro and the impact of what would happen if Greece did go back to its own currency. But that is all propaganda because no one has any clue what would happen if Greece does leave.
While as much as I would like to see even lower oil prices and local gasoline at P25 a liter, there are several cross-currents that could change the trend. Low oil prices have lowered inflation so much for the US economy that it puts a huge question mark on whether the US Federal Reserve can realistically raise interest rates in the near future. US consumer confidence is higher than it has been in years because of low gasoline prices. Maybe they will really start spending again.
So the Federal Reserve wants to raise interest rates to raise the inflation rate. But doing that could reduce economic activity even more. That is the classic rock and a hard place.
Money is looking for a safe haven and a reasonable return on investment for the next few months but where is that going to be found?
The Japanese yen has been fairly strong in the last month but do you genuinely want to put your money into a nation whose economy is in recession? Which way is China going to go: more stimulus or a pullback on government economic support? China has been sending signals both ways.
As mentioned, both Europe and the US have their own financial and economic contradictions right now and while these two may be ‘safe’, it is hard to get a safe return. The stock markets are strong albeit with extreme volatility, but who is willing to place a big bet on any of those stock markets for months in the future.
Of course, I am going to recommend the Philippines for economic growth, currency stability and possible strength, and a trending stock market backed by increasing corporate earnings. But the whole thing is a circular argument.
The local stock market probably has enough momentum combined with excess cash in the system from lower inflation to keep going higher for at least a few of months to keep pace with the lowest corporate earnings growth estimates. But after that is a big question mark.
Local companies will spend if they can make a profit from their increased spending but can pull back at any time. Foreign money will come in only if they see the market strong and local corporate spending stay on target.
The key as I have said before is to watch the Philippine peso. A stable peso means money is coming in. A weak peso means money is not coming in. It’s that simple to predict the future.
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.
1 comment
Money is flowing out. Philippine peso is not stable. Watch the central bank depreciate the peso in the coming months to force inflation short term but deflation is here.