Local stocks recovering lost ground

The market had a good run last Friday. Stock prices rebounded strongly on bargain hunting inspired by developments that also lifted Wall Street and other major equity markets overseas.

Serving to initially stimulate the local rebound and inspire a strong close in markets abroad came on Thursday from President Mario Draghi of the European Central Bank (ECB). He said the bank plans to further ease monetary policy in March to combat fading growth and disinflation, a plan he reiterated at the World Economic Forum in Davos after local trading time on Friday.

Disinflation is known as the slowing down in the rate of inflation, but general price levels do not actually drop throughout the economy as in deflation. Disinflation does not necessarily signal the onset of a slowing economy.

ECB’s plan was seen by Asian investors as a development that would likely move the Bank of Japan to mount a more aggressive stimulus program. Japan’s third quarter report showed Prime Minister Shinzo Abe’s “Abenomics”—based upon the “three arrows” of fiscal stimulus, monetary easing and structural reform—has yet to show results to reverse Japan’s years of poor growth.

During Wall Street’s opening, US investors regarded these developments as factors that could possibly persuade the Federal Reserve to go slow in raising US interests this year and give corporate performance more time to adjust.

Adding power to last Friday’s strong trading close was the short covering from investors, which also went on in the oil counters that saw a two-day rally in the price of oil. Oil prices went up by as much as 9 percent in the last two days of last week to settle at a two-week high above $30 a barrel.

The developments gave way to US stocks ending “at their highest in three months,” paving the way too for three major indices on Wall Street and other equity markets overseas to register their first positive week in 2016.

On the local front, the market’s strong rebound on Friday emboldened people to entertain the exciting idea that the market may have already hit bottom this early and ready to reverse the trend that has marked its direction since the start of the year.

SSS pension hike issue

In my view, the issue besetting the Social Security System (SSS) arising from its controversy with SSS pensioners is simply a question of performance.

The SSS claimed House Bill 5842, which increased the pension of retirees by P2,000, would endanger the long-term sustainability of the pension fund.

On this basis, the President vetoed the bill outright, mouthing the justification cited by SSS officials and underlings that its implementation would turn the pension fund bankrupt by 2027 or so. At present, employees contribute 3.63 percent of their salaries while employers put in 7.36 percent for a total of an 11 percent contribution.

In comparison, employees under the Government Service Insurance System (GSIS) contribute 9 percent of their salaries. The government contributes 12 percent, for a total of 21 percent.

Supporters of the pension increase suggested SSS could follow the rule employed by GSIS. This would enable SSS to have more funds to manage and grow while having an extra pool of money to support the pension increase.

Several lawmakers have accused the SSS of inefficient collection. They cited that in a Congressional hearing held in 2008, it was revealed that the SSS has uncollected revenues of P325 billion, an amount which its officials quickly dismissed last week to be about P13 billion only.

The difference in figures is immaterial. The fact remains that SSS has substantial uncollected revenues, the exact amount of which only heaven knows. Plus, this not speak well of SSS’s performance.

This problem, according to persistent claims, is complicated by the corruption perpetuated by the SSS’ own agents. There is allegedly a deliberate abstinence in revenue collection efforts.

The third, and most critical, is that its officials have been accused of getting big paychecks while not earning enough for the pension fund.

I have no argument about the high pay the SSS is giving its investment personnel. The question is whether they are up to international standards on investment skills to press for good returns for the money and other assets they have been charged to grow. Is their compensation based on performance or on a passive employment basis?

Remember, there are two critical skills that must be present in running SSS successfully. These are strong administrative capability and expertise in fund management.

Come to think of it, while the SSS is owned by its members, it’s the government that runs it. More often than not, the highest position is assigned to political appointees, most of whom do not have the necessary theoretical and/or practical background.

The highest position must be assigned to someone with, at least, strong administrative skills to make the organization work efficiently. What I know is that the SSS remains organizationally weak.

As for the SSS’s responsibility to manage and grow funds, it is imperative that technical positions required to produce results must be ascertained. The qualification and performance record of the present pool of fund managers and investment experts must be reviewed. Their employment or engagement should not be anchored on security of tenure (as any government employee) but on their integrity and ability to deliver favorable results.

Bottom line spin      

In the World Economic Forum in Davos, participants summed up China’s economic slide as manageable. It’s just a matter of time before the crises in the Middle East and North Africa caused by the ISIS disturbance and conflict in Syria are resolved.

The ongoing economic dampener affecting the Eurozone is also being handled with more determination and unity. And the US will eventually get its economic footing right. Most of all, the 4th Industrial Revolution is underway—bringing advances in all facets of life and growth in the economies of countries aided by technology.

In other words, good things are expected to come our way that may radically change the fretful landscape of the markets.

(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)