Chinese New Year and the market

There was a time in the local stock market when the celebration of the Chinese New Year was eagerly awaited. It always came with a bang, so to speak.

It was not yet then observed as a public holiday. However, this event always took place with great excitement and interest in the local bourse.

This was because as early as one week before the celebration, prices of stock favorites were already on the move, trading in wave-like motion and trending upward like a mini-bull run.

This, however, has changed. The Chinese New Year came without much of its old glory.

Last week, for instance, trading winded up on Thursday (Jan. 30) for the holiday. It was the eve of the Chinese New Year. The market closed for the week with a loss of 150 points, or 2.43 percent. The main index settled at 6,041.19.

If we were to look at how it was two weeks earlier—Jan. 13 to 17 and Jan. 20 to 24—the market then had the bearing of the old Chinese New Year celebrations. It was having a good run up.

The market started to trend upward on the week of Jan. 13 to 17. At the close of the week, it made a gain of 118.10 points, or 2.02 percent.  Total volume hit 3.85 billion shares while total value amounted to P30.01 billion.

This was followed by another weekly gain on Jan. 20 to 24. This time, the market was on a run-up in five out of five trading days that it ended with a gain of 230.52 points, or 3.87 percent. Total volume reached 12.11 billion shares but total value turnover barely increased to P31.85 billion. Transactions of foreign investors for the week were more of selling than buying.

On closer look, the results of trading for the week of Jan. 20 to 24 deviated in character from what it was on Jan. 13 to 17. Total volume tripled but total value turnover remained almost the same. This meant there was a shift in the type of stocks traded. The market shifted its focus from trading big cap stocks to small cap stocks. Foreign investors’ transactions also shifted to the selling side, unlike the week before.

At any rate, when you add the total performance of the market in January, it was still up with a net gain of 151.93 points, or 2.58 percent.

Markets elsewhere

Within the region, the countries sharing a shortened trading period with the Philippines to observe the Chinese New Year are China, Hong Kong, South Korea, Taiwan, Indonesia, Singapore and Malaysia.

Those that continued to trade up to Friday as they were not observing the Chinese New Year as holiday were Japan, India, Thailand, Australia and New Zealand.

Except for the slight gains made by those that do not celebrate the Chinese New Year as a holiday, the trading results for the week of both groups of countries were pretty much the same—the markets continued to move sideways to lower.

For instance, Japan’s Nikkei fell despite early gains as it continued to trade up to Friday. India’s Sensex gained less than 0.1 percent as it closed at 20,504.69, Thailand’s SET climbed 0.4 percent to only  1,269.19, Australia’s S&P/ASX 200 added less than 0.1 percent and New Zealand’s benchmark gained 0.5 percent to 5,258.40.

Though unaffected ever since by the celebration of the Chinese New Year, Wall Street underwent a similar trading performance last week. After stocks rose sharply, like our market on the back of earnings reports that “beat” prior estimates, “it ended with one of its worst January in years,” to quote news reports.

Europe also had the same trading results last week. It ended lower, this time, on concerns of the risk of deflation, which the global economy is facing at the moment. As described by World Bank head, Ms. Lagarde, the eurozone is at some “turning point” of recovery already but remained “vulnerable.”

Much of the explanations why markets—from Wall Street all the way around the globe to our shores—are falling, aside from weak earnings, are about the impact of the Fed taper or the quantitative easing policy the Federal Reserve is pursuing.

Much of the cheap money pumped by the Federal Reserve into the system through the quantitative easing program “found their way to emerging markets where demand for credit is high.”

By cutting back the stimulus fund released by the Federal Reserve, “this is not only causing the cheap cash to dry up, but it is also sending what is left back to the United States where the economic outlook is improving.”

According to data from EPFR Global, the research institute which tracks investment flows in emerging markets, emerging markets had been hit with big outflows. For “the week up to Jan. 29, it suffered the biggest withdrawal since Aug.  2011.” EPFR Global estimates that “there have been outflows of $12.2 billion” in January.

As of last week, the Federal Reserve continued to stick to its plan to reduce its monthly bond purchases, now down to $65 billion.

There is some speculation that the Federal Reserve may even “increase its tapering to $15.0 billion or $20 billion at one of its summer meetings, and expect the Fed to be done tapering by fall.”

This is on the premise that the US economy continue on its current path of growth and “despite the unfolding turmoil in emerging markets.”

Bottom-line spin

The observance of the Chinese New Year is yet to end on Feb. 15, but the way markets in the region and elsewhere in the globe greeted the coming of the event last week, it’s almost certain that we’ll be in for another bad market in the coming days.

It’s interesting to note, though, that unlike most markets around the globe, our local market still ended the month of January with a net gain.

It’s not because we were lucky but because there were some plus factors seen in our economy and political system as a potential safe investment haven. Political stability and overall peace and order seemed to have been cemented for the long term with the final signing of the Bangsamoro Framework Agreement last week.

In addition, while the International Monetary Fund (IMF) lowered its estimates for the region, it raised its 2014 economic growth projection for the Philippines.

IMF’s new projection places the economy growing by 6.3 percent this year and 6.5 to 7 percent in 2015.

(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.)