LOOKING good. That’s how I would describe the market’s trading results last week. It ended with an impressive weekly gain of 224.54 points or 3.04 percent at 7,617.13 on a trading period of only four days. Friday was declared an official holiday in observance of Eid al-Ftir, also known as Eid ul-Ftir or Eid.
The week before, the market was at the verge of capitulating below previous lows: Closing with a weekly loss of 142.71 points or 1.89 percent at 7,392.59, the market was only 0.94 percent away from its June 9 close of 7,323.44 which was the second lowest close of the market for the year.
At the year’s lowest close of 7,276.63 on Jan. 5, the market was 115.96 points or 1.59 percent away from a possible breakdown.
Fortunately, the market outlook changed dramatically last week from gloom and doom to gladness and hopefulness due to several positive developments. These saved the market from further weakness that would have surely led to a potential reversal of trend.
Developments
On Monday afternoon (Manila time), the feared collapse of the banking system of Greece was averted by a surprising change of stance by the contending parties in the crises.
After a marathon meeting of 17 hours, Greece’s Prime Minister Alexis Tsipras took the bitter pill of accepting a bailout package that observers from the far left and extreme right in the political spectrum condemned as a victory of terrorism and colonialism by international creditors.
As a result of the turnaround in negotiating stance, both Tsipras and Germany Chancellor Angela Merkel were reportedly faced with a possible “rebellion” from their own political ranks.
Tsipras has to face a “mutiny” from his party in parliament. He reshuffled his government, “replaced two ministers who voted against the reforms demanded by international creditors and changed another eight ministers and/or deputy ministers.”
He appointed non-technocrats, “sticking instead with members of his own coalition, including a TV soap opera comedian as junior labor minister – a decision which raised some eyebrows,” according to a commentary.
Equity markets around the world bounced back, taking the outcome of the talk positively.
Then, the “Iran nuke deal” came through: The deal that purports “to rein in Iran’s nuclear program” was finally agreed upon on Tuesday by the negotiating panels headed by U.S. Secretary of State John Kerry, on one side, and Iran’s President Hassan Rouhani, on the other side.
The deal—that was to “reshape the relationship of Iran with the West with its positive effects to ripple across the volatile Middle East” according to US President Obama—was received positively, again, the world over. The local stock market gained, along with other stock markets, such as the US where the S&P 500 hit a new high on Friday.
Adding pump to last week’s runup was the news on the state of the Chinese economy. Reports released by the Chinese government said China’s economic growth for the second quarter was “right on target.” It “rebounded strongly to 7.1 percent,” the report said.
China’s major source of growth for the period was the services sector. Services jumped to 8.9 percent, 12.66 percent better than the 7.9-percent growth in the first quarter. Industry, however, slid. It reportedly grew by only 5.9 percent year on year. The slowdown was compensated by the significant growth in the services sector.
Unsettling was the services sector’s source of growth. It appears to have come from the “soaring stock market,” says one commentary. This acceleration in services sector “is unlikely to last,” the commentary added. Stock prices were recently tanking.
Performance review
After one week of trading for the year, the Philippine Stock Exchange index (PSEi) and All Shares index advanced to 7,276.63 and 4,277.21.
At that time, the average daily value turnover was P7.12 billion. Year-to-date (YTD) average daily value turnover was P9.84 billion. Foreign investors’ market participation for the week and YTD were the same at 47.51 percent. Of note, foreign investors were net sellers.
The market hit its peak for the year in the week ending on April 10: By then, the PSEi has climbed to 8,127.48 or 11.69 percent higher from where it was as of Jan. 5. The index was also 9.66 percent higher by then.
At that time, the average daily value turnover has also gone up to 26.97 percent at P9.04 billion while average daily value turnover YTD rose to P10.71 billion or 8.84 percent higher.
Foreign investors’ market participation increased to 53.51 percent while average daily value turnover YTD also rose to 49.49 percent. Foreign investors ended marginally as net buyers despite a surge of trading activity to 60.57 percent of total market business on April 10.
As of last week, average daily value turnover has decreased to P6.47 billion. This is about 9.13 percent and 28.43 percent lower than the levels on the weeks ending Jan. 5 and April 10. Likewise, YTD average daily value turnover has declined by 1.01 percent and 11.58 percent. Interestingly, foreign investor selloffs seemed to have stopped.
Bottom line spin
The Greek financial package is “a three-year bailout program of up to 86 billion euros ($94 billion).” It still has to be fully adopted.
The Iran nuke deal, while also another positive development, has yet to be formalized. Among its downside, the recovery of oil prices to their normal levels may be pushed back further. Iran is expected to pump more oil into the market to raise money.
The second quarter report on China’s economy is favorable for the market but stock prices have yet to go down some more. Price earnings multiples (P/E ratios) are still at 100x or so. Despite recent controls imposed by the regime to control recent selloffs, a meltdown down is still possible.
Continue, then, to stay on the alert while the market is “looking good.” The market is probably not yet over the hump.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)