Start investing for the long term

With the month drawing to a close, the market has yet to muster any significant momentum. This, despite good fundamentals like the encouraging second quarter gross domestic product (GDP) report and favorable first semester operating results from most of the listed companies.

Based on last week’s results, the fragile situation of the market will likely continue until the end of the month. Foreign traders have been acting more as net sellers, thus dragging the market down.

The market only had two bad days of trading last week, down 37.19 points or 0.47 percent on Wednesday and 22.06 points or 0.28 percent on Friday, but it ended with a weekly loss of 25.11 points or 0.32 percent.

Aside from being daily net sellers, foreign investors dominated the market’s overall transactions.  They traded by as low as 45.16 percent of total market on Monday to as high as 56.83 percent last Friday for a weekly average of 51.95 percent.

As a result, the buying initiatives mounted for the week by local investors were easily muffled. Foreign investors virtually ruled total market transactions.

GDP highlights

The market’s total value turnover has not also exactly increased. On a good day, this reaches P10 billion, but on a year-to-date daily average, turnover remained just above P7 billion.

The government last week announced the economy grew 7 percent in the second quarter, which observers said was within market estimates. The growth was driven mainly by the industry and services sectors, with the latter expanding by 8.4 percent on the back of faster growth in trade, transport, communication, public administration and real estate, renting and business activities.

The Philippines appears to be the fastest growing economy in the region.  Per reports, China grew by 6.7 percent, Vietnam by 5.6 percent, Indonesia by 5.2 percent, Malaysia by 4 percent and Thailand by 3.5 percent.

Unfortunately, agriculture reported a disappointing performance. It reported a negative growth of 2.1 percent due to El Niño. Agriculture may continue to underperform due to the threat of La Niña.

As reported, too, net primary income (NPI) from the rest of the world—this refers to the receipts and payments of employee compensation paid to nonresident workers—improved by 6.2 percent compared to 2.5 percent in 2015.  The country’s gross national income (GNI) also expanded by 6.8 percent, which was 25.93 percent better than 2015’s 5.4 percent.

Public spending remained strong also in the second quarter, owing to the boom in public construction and government consumption, which grew by 27.8 percent and 13.5 percent, respectively.  Private consumption also reported a robust growth, benefiting from election spending “which intensified in the final months to the elections in May.”

Helping to fuel consumption, remittances from overseas Filipino workers also remained strong contrary to apprehensions earlier in the year.  Year-to-date remittances as of June 2016 rose 3.2 percent higher at P13.19 billion compared to last year’s first semester record.

Overall, domestic demand growth accelerated to 12.3 percent from 12 percent in the first quarter of 2016.

Philippine exports, meanwhile, continued to suffer due to sluggish global demand.  Overall exports of goods and services continued to slow down to 6.6 percent despite the 15.3 percent growth of services exports.

Imports of goods, on the other hand, rose to 22.9 percent largely due to increased purchases of capital goods and durables, which the National Economic Development Authority (Neda) said indicated an increase of investments from firms.

Meanwhile, the Bangko Sentral Ng Pilipinas (BSP) kept its key interest rates steady during its Monetary Board meeting last week owing to observed manageable inflation.

Based on the given figures, observers are confident the economy will be able to hit a 7 to 8 percent full-year GDP growth, even if the economic managers of the new government have lowered their estimates between 6 to 7 percent.

Bottom line spin

The Chinese ghost month will soon be ending. Its negative psychological impact on market participants will soon also go away.

Considering the country’s good economic performance and the new government’s spadework to foster peace and order in both the social and political fronts, investing for the long-term rather than trading on short-term plays will provide a better return.

The engaging trading play in PhilWeb in the last two weeks would have put you on a losing position at the end of trading last Friday.  But a carefully studied positioning on first liners, especially on some issues in the power and property sectors, should soon be looking very prospective.

(You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)