Expect sharper volatilities
The behavior or direction of the market is the product of a mix of existing factors. These could be events emanating from both local and overseas fronts. However, they do not necessarily have an equal weight in simultaneously driving the market to a certain direction.
One of these factors may surge to become the main catalyst in the market’s resultant behavior or direction. This may be for the day or for a longer period of time. Many times, such factor may appear at first to be seemingly minor or routine in nature in comparison to the other prevailing factors, which are ordinarily regarded as more serious or comprehensively significant. But just like the proverbial straw that broke the camel’s back, the minor factor could actually rise above all of the other factors present and become the dominant stimulus responsible for the market’s movement in a given time.
Last week for instance, the market along with the peso climbed upon resumption of trading on Tuesday, following the presidential elections the day before. Weeks before then, the market was on a continued slide, dropping as in being wary about the imminent win of the regarded controversial presidential candidate, Davao City Mayor Rodrigo “Rody” Duterte. The peso was then just as weak, continually slipping in value behind the dollar and regional counterparts.
Surprisingly as in a paradox, the market reversed trend and went up instead last Tuesday in euphoric reaction to the inevitable sign the good mayor may become the next President of the country. The market closed for the day at its session’s high of 7,174.88, on the back of a day’s gain of 183.01 points or 2.62 percent.
Likewise, the Philippine peso gained strength against its Asian peers and against the dollar. In particular, the peso rose to its highest in six weeks against the US dollar. On Wednesday, the market climbed higher supposedly in further approval of the unfolding developments of a landslide win by Duterte as President, adding another 221.64 points or 3.09 percent as it closed at 7,396.52. On Thursday, though, the market dropped to 7,325.04, or a loss of 71.48 points or 0.97 percent, on profit-taking.
Further analysis
The unexpected downturn was a puzzle as it appeared contrary to interpretations made on the immediately preceding trading results. It seemed to show the election and its results had no impact much less correlation with the market’s movement, after all. However, experience confirms the results of trading last Tuesday and Wednesday were an expression of the general investing public’s resounding appreciation to the relatively clean and peaceful conduct of elections. It was, at the same time, a sign of approval in the election of a president who did not belong to the usual “political elite or establishment.”
Back then during the campaign period, the presumptive President-elect left the business sector wanting for more details on his plans for the economy. Business decision makers, in particular, wanted to know more how he would capitalize on existing economic gains and how he would make growth and progress become more inclusive as to benefit the general populace. Recent statistical data showed that “one in four Filipinos still live on P50 a day or less.”
It was due to this lack of focus of Duterte on business and economic issues that conditioned seasoned investors to invest for the meantime on short term basis only. Thus, the market succumbed to profit taking on Thursday. In the afternoon of Thursday, the presumptive President-elect’s team held a press conference to unveil the prospective administration’s economic and development agenda. The unveiled plan powered the market to bounce back on Friday with a day’s gain of 111.75 points or 1.53 percent. It also propelled the market to settle at 7,436.79 and end with a weekly gain—and huge weekly rate of advance—of 444.92 points or 6.36 percent.
Come to think of it, this weekly rate of advance of the market could make it a breakout in two weeks from its all-time high of 8,134.38 established on April 10, 2015. Of course, this notion will not happen as easy and as simple as that. It will not happen even if the market will continue to ride on last week’s pumped up daily average value turnover of P10.78 billion. It will not even happen even if foreign investors’ percentage of participation to total market transactions were to go up above 60 percent.
The only instance in which the market could probably break out in two weeks by this daily average value turnover is when foreign investors’ participation to total market transactions stay consistently high, at the same time be consistent net buyers in the market. But then, this is will never happen considering the observed trading tactics of foreign investors.
Bottom line spin
The market will no doubt continue to be volatile while more details of the presumptive President-elect’s plan to manage the development, growth and stability of the country unfolds.
The proposals for Charter change to foster decentralization of governance under a platform of federalism and the reform plan that may make radical changes in the judicial system are only two examples that will surely drive the market to further volatility.
Lastly, as the people voted for change than continuity, this will also bring about not only sharper volatilities but exciting market plays as well.
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
