Ongoing market weakness

The market tumbled upon the resumption of trading last week which, market observers said, mirrored investors’ fear on the overbought or overpriced status of local stocks.

The market fell on Monday and Tuesday posting a loss of 81.67 points or 1.05 percent, with the benchmark index dropping to 7,761.53.

Given existing technical issues and unfolding fundamental concerns, it fell more sharply on Wednesday.

These developments made the market suffer its biggest single day’s loss for the week of 129.80 points or 1.68 percent, with the benchmark index falling to 7,598.70.

The market remained in negative territory on Thursday despite the strong rally on Wall Street the night before that resulted in the Nasdaq posting a new all-time high.  This would have encouraged local investors to shift to a higher gear but they remained lukewarm.

On second thought, Wall Street’s strong performance might still have some positive impact because losses hit only 93.67 points or 1.23 percent, better than the three-digit point loss in the morning session.  The benchmark index settled at 7,505.03.

In the same fashion, the market bounced back on Friday, even if Wall Street fell lower the night before to correct from a sharp advance in the previous session.

This development enabled the benchmark index to climb back to 7,580.46, on a day’s gain of 75.43 points or 1.01 percent.

On a weekly basis, however, the market ended with a loss of 229.71 points or 2.94 percent, further trimming the market’s overall advance since the beginning of the year to only 349.89 points or 4.84 percent.

Explanations

Many felt that stock prices became overpriced when they hit 8,127.48, up 13.1 percent, in early April and after it was unable to break out from the record session high of 8,136.97 in succeeding sessions.

Due to this technical weakness, stock prices continued to move sideways to downward as the market remained uneasy and tended to fall into selloffs every time other markets, like Wall Street, tumble.

Reports on corporate results for the first quarter further undermined the performance of stock prices as the majority of said results tended to disappoint.

The country’s GDP report for the first quarter also came out last week, fueling more negative trading results in the market.  The rate of growth of the economy during the quarter was only 5.2 percent.

The government did not roll out enough public projects and services that would have generated vital outputs that support economic growth.
Government spending fell short of the desired level, hitting only P504 billion from January to March.  This was up by 4 percent year-on-year but was 13 percent off the P582.2-billion target.

Also, the Philippine Statistics Authority reported that public construction contracted by 24.6 percent in the first quarter, from a growth of 17.5 percent a year ago.

The economy, it added, also suffered from the 1.8 percent contraction in net exports.
On the production side, the agricultural sector contributed only 0.2 percentage points to GDP growth.  The industry sector, however, posted a 5.5 percent growth.  This was 0.1 percent higher than the 5.4 percent growth rate a year ago.

The growth in industry sector was boosted by manufacturing, which contributed 4.2 percentage points to total industry growth.

Government revenue during the first quarter grew by 18 percent higher to P470.5 billion.
The Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) contributed P307.1 billion and 93.3 billion, respectively.

The BIR collections, however, were 9 percent lower than the target even if they rose 16 percent year-on-year.  The BOC’s collection was also 11 percent below target, but 7 percent up year-on-year.

In the end, the government’s total revenue for the first quarter still stood P84.1 billion short of target.

Bottom line spin

The government admitted that “the slower-than-programmed pace of public spending, particularly the decline in public construction, has slowed down the overall growth of the economy.”  It added, however, that “the recent uptick in disbursement from the Department of Budget and Management has not yet been reflected in the national income accounts.”

By the reckoning of some private quarters, in order for the economy to hit its full-year target of at least 7 percent, the economy must post an average of 7.5 percent growth in the second quarter all the way to the fourth quarter.

The government’s P6.58-trillion infrastructure projects are seen as one of its best bets to meet the spending target needed to hit the minimum yearend growth goal of at least 7.0 percent.

Looking at the spending restraints, the budget department might face difficulties in hitting its goal given the limited time left for it to do so. In turn, this could keep the market from turning a better performance from now on.

(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)