Quantcast

Corporate Securities Info

Reality check on stock trading

By |

While the public’s attention was drawn in recent weeks to the pork barrel scam, two significant developments in our economy almost passed unnoticed.

The stock market sank to its lowest level since it rose to its highest last May. All the gains it earned during that month and after were wiped out last week.

Some stockbrokers expressed apprehension that the slump may still worsen in the coming days.

While the stock market was in a gloomy mood, a different atmosphere spread through the National Economic and Development Authority. The country’s premier economic planning office announced that our gross domestic product in the second quarter grew by 7.5 percent.

Although the growth fell short of Neda’s expectations, there was reason to be happy considering that the world’s major economies continue to suffer from serious financial problems.

Neda chief Arsenio Balisacan attributes this favorable development to the country’s strong economic fundamentals. He said our foreign exchange reserves can support 12 months of imports and that our inflation rate is at the low end of the targeted range.

Something doesn’t seem right with the way things went differently with these two interrelated events.

Variance

Under normal circumstances, when the economy is on an upswing, the stock market (which stockbrokers claim to be the barometer of the country’s financial health) should also be on the same ride.

The textbook theory is, when the economy is in good shape, people with disposable income will, after meeting their basic needs and fulfilling some of their amenities, invest in stocks.

If the investor is the conservative type, he looks to stocks as a source of extra money by way of dividends; if his intention is to earn from the appreciation of their value, his game plan is to sell them when they reach a certain price level that assures him of some profit.

It will be recalled that, during the months that preceded the all-time high of the stock market in May, the stock analysts and their comrade in arms, the stockbrokers, touted the country’s healthy economic condition as the principal reason behind the spike in stock trading.

They said the investors, in particular, foreign funds, were gung-ho over the way the Aquino administration was running the country. The foreign capital entry was described as a vote of confidence on the President’s governance.

The hype worked. Attracted by supposedly high returns on stock investment, a lot of people who otherwise would be wary about buying stocks joined the buying frenzy.

Transient

As more foreign money came in, the stock prices underwent price swings depending on the developments in the local scene and the performance of other stock markets in the region.

Like their counterpart in other capital markets, these foreign investors buy and sell stocks with only one objective—to make money, lots of it. They bought stocks when prices were down and unloaded them when they felt they could already make a buck and more.

There is nothing wrong with this strategy. Their principal responsibility to their own stockholders is to look for the best returns possible and at the shortest time for their investments.

Their involvement in the stock marker has no long term perspective. It is not aimed at creating jobs for Filipinos or putting up facilities that can contribute to the country’s growth and development. Corporate social responsibility is hardly a factor in their business plans.

The foreign funds leave at the first sign of trouble or when they have made enough profits at the expense of other investors who failed to pull out before the roof fell.

The only people who benefited from their transitional stock market participation are the stockbrokers who earned commissions from the transactions.

New line

If, as earlier claimed by stock market propagandists, that the all-time spike in stock trading was attributable to the country’s sound economic policies, what should we make then of the recent depression in stock trading?

Did the foreign investors pull out because they have lost faith in the administration’s capability to competently steer our economy? Should the sellout be interpreted to mean that the country’s economic fundamentals cannot be trusted to sustain growth and development?

If that “logical” approach is taken, then Neda should be called to the carpet for claiming that the 7.5 percent GDP growth is a product of the country’s strong economic fundamentals.

Well, it looks like the stock market is now singing a different tune. Aware that contradicting Neda’s assessment would be politically incorrect and could put its bigwigs on the wrong side of the administration, it has shifted gears.

The trading slump is being “blamed” on recent events in the United States capital market. Without going into details, the Federal Reserve has taken steps to make investments in the US more attractive or profitable.

It is not surprising therefore that the foreign investors who once used the local bourse as temporary financial playground have pulled their stakes and made an exodus to the US to make more money.

Unless something similar to the 2008 US housing mortgage meltdown happens, the local bourse would have to learn to subsist without foreign funds that make a living from exploiting weaknesses in the capital market of developed and developing countries.

If it is any consolation, not all local investors were caught napping during the reversal of fortunes in the stock market.

The institutional investors who knew the foreign funds’ game plan and could read the tea leaves in the international capital market were able to get out before the stock market took a dive.

As in similar situations in the past, the small stockholders—those who were not privy to vital inside information about the capital market—found themselves holding the proverbial empty bag. (For comments, please send your email to rpalabrica@inquirer.com.ph.)


Follow Us







Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

  • 33Sam

    REALITY CHECK???

    THE CONTROLLERS OF THE STOCK EXCHANGE SYSTEM THE GOLDMAN SACHS, J.P. MORGANS ET ALL HAVE RIGGED A NEAT PONZI SCHEME FOR YOU TO GIVE TO THEM WHEN YOU HAVE “DISPOSABLE INCOME!!!”

    THESE CROOKS HAVE WIRED THE SYSTEM TO REPORT TO THEM, THE CONTROLLERS, OF THE STOCK CHANGES SECONDS BEFORE, BEFORE YOU, THE PONZI VICTIM KNOWS ABOUT THEM. THIS WAY THEY KNOW WHEN TO BUY AND SELL WHILE YOUR DELAY IN INFORMATION AND SAVVY LEAVES YOU HOLDING THE EMPTY BAG, THINKING YOU’VE “ARRIVED” WHEN IN REALITY THEY SAW YOU “COMING” FROM MILES AWAY!!!

    YEAH LIKE THE CASINOS IN LAS VEGAS, THE HOUSE ALWAYS WINS!!!

    HOBNOBBING AND ELBOWS,
    DEMITASSE AND BULL$HIT!!!
    THUNDERBOLT AND LIGHTING
    VERY VERY FRIGHTENING ME
    OH MAMA MIA MAMA MIA
    MAMA MIA LET ME GO
    BEELZEBUB HAS A DEVIL PUT ASIDE FOR.. YOU!!!

    ANYWAY THE WIND BLOWS…

  • 33Sam

    Bismillah! No – we will not let you go – let him go
    Bismillah! We will not let you go – let him go
    Bismillah! We will not let you go – let me go
    Will not let you go – let me go (never)
    Never let you go – let me go
    Never let me go – ooo
    No, no, no, no, no, no, no –

  • http://www.personalfinanceapprentice.com/ Carlos PFA

    the stock market rise was never tied to the Aquino administration or their anti-corruption agenda, or any of their agenda for that matter. Those have more to do with FDI’s (which we still don’t have enough of, by the way)

    It was always tied to hot money, as one commenter here said.

    And while new investors may have been caught in this crash, the fact of the matter is that it didn’t have to be. If you sell and buy on news and current events, you’re playing a speculators game and deserve what you get.

    Buying stocks is an exercise in discipline. There’s always a way to make money,as long as you carefully analyze where you are, know where you want to be, and steadfastly stick to your goals (following or adjusting your plans as necessary).

  • Pinsan_ni_Mang_Kanor

    It will take less time before foreign fundies realizes how attractive once again our market is. Thanks to them, they are only making our companies look cheaper and more attractive to “dividend stock hunters”. With a sound company that keeps on growing and consistently gives growing dividends, this crash is a blessing.

  • carlcid

    Two words: Hot Money. That was the fuel for the so-called “boom” in Philippine capital markets. It doesn’t mean that fundamentals were, or are, not good. It’s just that there was too much hype, especially by a trigger-happy administration too hungry to take credit for any feat, imagined or real.

    So the truth lies somewhere in between. Fundamentals are fine. They have been for some time, since Philippine bankers and finance officials seem to have learned their lessons well from the Asian financial meltdown in the late 1990’s. But it cannot be denied that cheap money, arising from the global flood of liquidity, created a rising tide that could not be sustained in the long run. Now the situation is more normal. This time, fundamentals will be a lot more crucial and it is, indeed, time to take a reality check.

  • OFW_Investor

    It is not necessary to have vital private information about the capital markets to Invest well in the stock market. A fall in price is a buying opportunity for a rational Investor.



Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94
Advertisement
Advertisement
Marketplace