Still at risk of a sudden downturn
Last Thursday, the market broke its long-time high of 8,100, exciting many to the idea of more great market plays to come. But the fantasy was stopped short when the market fell disappointingly the following day on profit-taking led by foreign investors. The market closed last Friday at 8,025.35, with a day’s loss of 76.95 points or 0.95 percent, enough to overturn previous gains made earlier in the week. This resulted in making the market close for the week with a small net loss of 4.71 points or 0.06 percent.
While not conclusive, the fact remains that the market was unable to stage a strong rally. There are two major reasons offered to explain it. The first is about the impact of seasonal factors on the market like the coming Chinese Ghost Month, which begins on the 15th day of the 7th lunar month. This usually falls from August to September under the Gregorian calendar. During the Ghost Month, the deceased are believed to visit the living—an occasion in Chinese folklore that may or could attract more bad luck than good fortune.
This year, the ghost month will be from Aug. 3 to Aug. 31 and the festival will be celebrated on Aug. 17. In the Philippines, the market is generally observed to slow down at the onset of the Chinese Ghost Month. During the period, the market would drop and, on rare occasions, it would move sideways.
We need not go back very far to see a sample of this correlation between the market’s behavior and the impact of the Chinese Ghost Month. This was clearly demonstrated in the market’s recent movements during the ghost months of 2011 to 2015. Except for 2014, where the direction was largely “sideways,” the market was on its traditional downward pattern.
South China Sea row
The factor that is more alarming—as it has a potential impact that could completely alter the market’s complexion and general direction—is the ongoing territorial conflict between the Philippines and China in the South China Sea.
The United Nations Arbitral Tribunal issued a 501-page ruling last July 12 that the Philippines has exclusive sovereign rights over the West Philippine Sea (in the South China Sea) and that China’s “nine-dash line” was invalid. The tribunal, in no uncertain terms, declared that there was no legal basis for China to claim historic rights to resources within the sea areas falling within the “nine-dash line” that constituted about 90 percent of the South China Sea. In response, China continued to insist that it has no duty to abide by the award of the UN arbitral tribunal. In the past several days, it continued to drive away Filipino fishermen in the fishing grounds of Scarborough Shoal, also called by the Philippines as Bajo de Masinloc or Panatag Shoal.
The 10-member Association of Southeast Asian Nations—now holding its 49th Southeast Asian Foreign Ministers Meeting in Laos—have failed (as of Sunday morning), to reach a consensus on how to address the issue. The membership is split between countries that have territorial claims or usage of the waters and others who are more dependent on Chinese aid.
Bottom line spin
In several books that dealt on the study leading to the clash of nations or civilizations in history, the South China Sea issue could serve as a classic trigger to a full blown conflict—apparently between the United States (representing Western influence) and China (representing the Non-Western or Oriental culture), with the Philippines as a collateral participant. The source of the conflict is but the result of a pure case of challenging the hegemony of an old power like the United States by a new rising power like China.
Samuel Huntington, a political scientist and Harvard University’s longtime director on international affairs, observed that cultural and religious identities had served as primary fuel to conflicts. However, he also suggested that this has evolved into a conflict between Western and non-Western civilizations or between “the West and the Rest,” as termed by Kishore Mahbubani, a student of Huntington and dean and professor in the Practice of Public Policy of the Lee Kuan Yew School of Public Policy at the National University of Singapore.
On a historical note, this has yet to happen. In the meantime, the looming dark clouds will continue to render our market still at risk of a sudden downturn.
(You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com)
