New Chinese lunar year market outlook

The rate at which the market has been moving up since January is staggering.  In only 28 days of trading from the start of the year, the benchmark Philippine Stock Exchange index or PSEi already scored a total net advance of 12 percent.  This is about four times of the registered average monthly net rate of advance in 2012.

When trading ended for the week last Friday, the PSEi closed just 11.82 points below the market’s latest peak of the year at 6,458.67.  This resulted in a net weekly advance equivalent to 140 points or 2.22 percent.  This also allowed the market to advance for the sixth straight week.

Beyond this performance, there are some trading details during the week that cannot be ignored and should be studied seriously.

The market opened for trading on Monday with a strong advance that sent the PSEi closing higher by another 117.37 points or 1.86 percent than day-ago level.  The market closed at 6,435.98 on a total volume of 3.13 billion shares on a total value turnover of P11.18 billion.

On Tuesday, Feb. 5, the market hit the all-time session high of 6,479.31 and closed for the day at an all-time high of 6,470.49.  Total volume rose by 31 percent to 4.09 billion shares while value turnover dropped by 14.4 percent to P9.57 billion.

The inverse movement of volume and value turnover on Monday and Tuesday appears to be a factor that will contribute to the reversal of the ongoing trend.

While the market opened higher by 9.04 points from Tuesday’s closing on apparent bullish sentiments—which propelled the market to establish a new session high of 6,486.45 at midmorning—the balance between market bulls and bears has actually changed in favor of the latter.

This became evident as trading went on in the afternoon.  The market slightly dropped to a low of 6,431.35, which served as the market’s closing index for the day, too.

Total volume was lower at 3.25 billion shares but value turnover was higher at P10.78 billion.

Again, this movement of the market drove up the prices of stock favorites that the PSEi closed higher by 28.64 points or 0.45 percent at 6,459.99 on Thursday, on a total volume of 3.75 billion shares and value turnover of P8.45 billion.

The drop in value turnover seemed to foretell what will happen the following day, Friday.  The PSEi fell slightly to 6,458.67 for a loss of 1.32 points or 0.02 percent with volume of 1.67 billion shares and value of P7.84 billion.

With a very small volume of shares and a relatively big amount of money in play, trading on Friday was, as expected, a selloff and profit-taking on big-cap or higher-priced stocks.

As reported in the newspapers over the weekend, “the stock market index on Friday succumbed to a healthy correction that was expected by analysts.”

Predictions

This week marks the weeklong celebration of the new Chinese lunar year, the “Year of the Water Snake.”

Pre-Chinese new year celebrations observed over the weekend seem to show positive sentiments and intense attitude toward a good year.  Such reading, according to some market participants, might not necessarily translate to immediate market advances. They think profit-taking and selloff activities will continue until the desired correction is achieved.

The non-occurrence of such a market correction at this time could lead to a more serious market decline that may even result in a breakdown of the market’s support, or the critical 6,000 level.

Market observers insist that a correction will continue this week since most market makers will be out on vacation at this time.

Anyway, the market is expected to immediately revert to an upward trend as the wider all-shares index did not drop along.  Last Friday, it held on and closed even slightly higher by 1.71 points or 0.04 percent at 4,064.41.

To complete the picture, the total volume for the week reached 15.89 billions shares as value turnover hit P47.82 billion.

The total main board cross transaction for the week hit 1.15 billion shares on a value turnover of P15.26 billion, or about 32 percent of the week’s value turnover. This does not include transactions on special block sales which amounted to P1.70 billion or 3.55 percent of the total weekly value turnover.

Total foreign buying for the week remained bigger than foreign selling at P26.88 billion and P22.31 billion or at 1.2 times to one, respectively.  These accounted for nearly half of the total value turnover.

A further increase in the amount of special block and main board cross transactions, along with a further increase in the balance of foreign buying and selling transactions, will be the variables that will lead the market to its continued climb.  Also because of these, the expected correction of the market this week will be shortened.

Bottom line spin

Surely, the familiar loud beats of the drum and the deafening sounds of the cymbals with the lion and dragon masks to expel the evil spirits will again be experienced at the trading floor this week.  Beyond these cultural exercises tied in imploring a prosperous New Year, how do some experts of the Chinese calendar see the effect of the “Year of the Water Snake” in the stock market?

First, it is seen to be a financially rewarding year.  The stock market will continue to trade higher but unlike other years, it should proceed slowly.

This seems contrary to what has been going on.  The market has been moving up on a fast clip since the start of the year.  What this could mean is that the market may proceed with several fast rallies but will also fall in a series of corrections that will, nevertheless, end with the index still higher.

Another current inconsistency— which is not, however, expected to result in an irreconcilable complication—is the market’s current status as the “priciest” in Asia.  It is now trading at nearly 17 times projected earnings.  This is said to be nearly double the average earnings of companies in the Asia-Pacific region.

This market situation is not considered a problem, for being the fastest-growing economy in SEA, earnings are expected to grow bigger.  This will make price multiples lower or cheaper again.

Also, the market’s current price levels have been largely due to local investors’ investment punting.  The impact of foreign investment activity has yet to be completely reflected.

(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)