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Market’s bad start

/ 01:37 AM January 12, 2016

The market had a bad start this year, like all other major markets around the world, bugged by the longstanding concerns on China’s weakening economy and the falling price of oil, which many believe could lead to more global financial and economic issues.

These factors were further aided by events that unfolded during the week, including the quarrel between Saudi Arabia and Iran that broke into another level possibly pushing back efforts to find stability in the Middle East and North Africa still reeling from the ISIS threats.

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North Korea also created a stir in the market when it claimed success in detonating a hydrogen bomb last week as part of its plan to establish itself as a vaunted military force within the region and a deterrent force against the United States.

All these developments drove down the benchmark Philippine Stock Exchange index (PSEi) to 6,575.43, a weekly loss of 376.65 points or 5.42 percent.

FEATURED STORIES

The market’s trading data also supplied interesting technical revelations on last week’s steep fall.

While foreign investors have turned to net buying, the percentage of their trading activities to total market transactions was low at 48.39 percent only. This was comparatively lower than last year’s “normal” of foreign investors’ trading participation, where they ranged above 50 percent.

As previously observed, this “normal” behavior of foreign investors had significant bearing in the market’s direction.

Low turnover

It would also be noted that average daily trading value for the week remained low at P4.4 billion. This was about 50 percent lower than last year’s average. Last year’s daily average was bigger, but still failed many times to ensure a market close on positive territory. Last week’s average trading value was not enough to thwart the momentum of market bears (sellers) or too small to power a market advance.

On the list of stocks for price gainers and losers, it can be observed that most of the issues that led the list of gainers were those that did not show significant trading volume and value turnover. At closer inspection, these were mostly third liners that were speculative stocks.

The sectors that were badly affected last week were the mining and oil and property sectors. Needless to say, the ongoing drop of oil prices in the world market has definitely caused the continued losses in the oil sector. Also, the mining sector will continue to suffer in performance until a new policy to shore up its contribution to the economy is finalized.

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The property, holding firm and service sectors respectively sustained losses of 6.82, 5.14 and 5.91 percent, while the financial and industrial sectors ended with lesser losses of 4.13 and 4.38 percent, respectively.

In view of the general weakness of the market, investors sold their shareholdings in the property and holding firms sectors last week to take profit or play safe from the erosion of their investment position. Take note that these two sectors ended with positive performances in last year’s market.

The same reasons would have played in the other sectors’ losses last week.

Fossil fuels

The three major forms of fossil fuels are coal, oil and natural gas. They are made up of dead trees and plants that sunk into the bottom of swamps or oceans and formed into layers of spongy material called peat. The peat would be covered by sand and clay and other minerals over the years to turn into a rock called sedimentary.

The rocks pile on top of each other, pressing down on the peat. The product squeezed eventually turn into coal, oil or petroleum and natural gas. In other words, fossil fuels take millions of years to make. We are said to be using fossil fuels that were made more than 300 million years ago before the time of the dinosaurs. They are not renewable, thus they can’t be made again.

For this reason, producing countries tried to control their exploitation, production and sale in order to both earn big profits and conserve their wasteful use. Over the years, we saw a growing awareness against the use of these products. Efforts to replace them are likewise said to be contributing to their current weak prices.

Studies claim the world is not prepared yet to replace coal and oil to crank industries and power the global economy. Even developed countries like the US are still largely dependent on the use of coal and oil for energy. It will also cost so much and more years to migrate into facilities that can use less harmful alternative sources of energy.

Political-economists, however, observed that the changes in the social, economic and political fabric of countries that happened over the years actually led to the present unmitigated production and weak pricing for coal and oil. The political turmoil in Ukraine, Russia’s designs for influence in the Baltic peninsula and elsewhere in the world, the socio-religious upheaval of the ISIS, the political instability in Syria and fight for political leadership and economic primacy in the Middle East and North Africa between Saudi Arabia and Iran are examples of these dynamics leading to the ongoing trend in the production and pricing of oil.

Bottom line spin

China’s weakening economy, the falling price of oil, along with other political, social and religious dynamics leading to present uncertainties are expected to continue and haunt the market. As they may very well lead to more market volatilities, it is recommended that a short-term rather than long-term investment strategy be adopted. Such a strategy would give us flexibility to enter or exit our stock positions to take advantage of opportunities to profit, avoid losses or preserve capital.

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

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