Put on your pants back
Markets like ours were certainly spooked by dark global reports last week and the selloff that followed also took the pants off many investors, so to say.
We got worried about the economies of the eurozone nations. They are shrinking. And, aside from endemic growth problems, the economic sanctions they imposed on Russia are reportedly hurting them back. They are actually contributing to the shrinking of their economies—Russia is one big customer to forego.
Also, the price of oil has reached a four-year low due to cuts in demand estimates. This is a disturbing development since it is a traditional indicator of growth. The downward drift points to an unfavorable picture of global growth.
The movement of copper prices is another concern. Among others, copper prices have been serving as a subtle indicator of the health of China’s economy. Like what the reports say, copper prices have fallen to five-year lows due largely to the slowdown in demand in China, its biggest market.
Adding to the dim outlook is the state of the Russian economy which is said to be in a “collapse mode.” The sanctions are taking their toll. The collapse will happen unless Putin blinks. This can also be avoided, according to one silent postulation, if his private-business backers should take matters into their hands similar to what watchers suspect may have happened recently in the secretive northern Korean enclave.
A clandestine group—said to have been organized by the original “Great Benevolent Leader,” which he empowered “to guard the gains of the country”—seemed to have taken into its hands the control and hold of the government from its present mercurial young leader.
As if the above news were not bad enough, the increasing news on the possibility of Ebola coming to the doorsteps of presently unaffected countries like us abounds. After Spain, it traveled to the US, showing it will spare no borders.
This is complicated by the dangers of the threat of the war in the Middle East. The war to install a Muslim caliphate is getting awry. Slowly unfolding as it is, reports seem to show it has reached our shores.
Actual damage
Except for last Monday, the damage suffered by our market from the said reports was not extensively terrifying. After the benchmark Philippine Stock Exchange index and All-shares index immediately fell upon the opening of trading on Monday, the market managed to withstand the selloff and limit overall losses for the day to only 199.26 points or 2.78 percent.
This is a far cry from the market’s loss on the so-called Black Monday stock market crash on Oct. 19, 1987, when equity markets around the world shed huge value.
Reviewing the records, the crash began in Hong Kong at the time. Then, it spread to other markets in the region like ours, and summarily routed everyone. It proceeded to hit Europe and the US later on as their markets opened for the day.
The Dow Jones Industrial Average or DJIA dropped by 508 points or 22.61 percent as it settled at the end of the day at 1,738.74. Our market also ended with a similar loss that day, to my recollection.
Following the selloff last Monday, our market suffered a smaller loss on Tuesday. This amounted to only 22.03 points or 0.32 percent.
On Wednesday, market bulls (buyers) took charge on bargain hunting. As a result, the market logged in an overall gain for the day of 45.13 points or 0.65 percent.
This was followed on Thursday by another gain for the day of 37.39 points or 0.53 percent. This enabled the market to bounce back and edge above the significant 7,000-index barrier, to close at 7,028.58.
The advance, however, was not sustained on Friday. The market ended with a day’s loss of 25.36 points or 0.37 percent. Foreign investors ended as net sellers with their participation to overall trading activities dipping for the first time to 37.48 percent—way below their regular record of 50.0 percent.
Notwithstanding these factors, the market managed to hang on and close at 7,003.22 and ended with a weekly loss of only 164.13 points or 2.29 percent.
Bottom line spin
Evidently, the foregoing trading results show that investors managed to recover from the initial selloff last Monday. More than that, investors neither panicked nor permanently sold out of the market.
Average daily value turnover remained at P8 billion. And while trading volume shrank, trading was confined to chasing higher-cap stocks. In addition, trading last Friday rose to P69.95 billion, of which 68.79 percent or P48.12 billion was regular value turnover which, in turn, meant that local investors committed additional money into the market.
The price of oil also seemed to have lost its use as a proxy to growth. Due to the discovery of more oil supply following the shale revolution in the US and other parts of the world, they have rendered oil prices to stay soft despite growth demands.
A hard landing of the Chinese economy is, as well, argued to be unlikely. “China is a managed economy,” argues one commentary. “They can always print money as long as they want. And, who would know?” it added.
On top of these, growth estimates for the US economy have been upwards and not downwards. Added to that, US business with EU countries was estimated to be only 13 percent and even a full recession is not expected to bring down the US economy. After all, the US is said to be 70 percent driven by consumer spending.
The same is felt locally. There is enough internal demand to drive the local economy to grow further.
On the technical side, the market’s overall gain has gone up to as much as 1,397.46 points—up 23.73 percent—as of the week ending Sept. 19. Since then, it has been encountering intermittent selloffs, as in going through regular technical correction.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com
