Once again, the Philippine Stock Exchange index (PSEi) dropped below the 7,000-mark last Friday when it closed at 6,929.07. Comparatively, this was the market’s lowest since May 10 when it finished at 6,966.35. This also made the market 23.01-points shy from where it all started this year at 6,952.08.
Also closing lower was the broader All Shares index. It slipped 102.05 points or 2.36 percent when it settled at 4,220.21.
Decliners outnumbered gainers at 159 to 29, while 45 issues remained unchanged. Decliners were led by first- and second-line stocks. Among these were Ayala Land, Inc. (ALI), Ayala Corp. (AC), Universal Robina Corp. (URC), GT Capital Holdings, Inc. (GTCAP), Metropolitan Bank and Trust Corp. (MBT), and SM Prime Holdings, Inc. (SMPH).
On the other hand, total value turnover was exceptionally high at P9.48 billion. Based on trading experiences early this year, this should have been significant enough to drive the market upwards.
But this did not happen.
Except on Tuesday when they were buying only to a marginal extent, foreign investors were selling all week. Their total value turnover also dropped to only 42.86 percent of total market transactions, which meant they were not just unloading their market positions, they were also reducing their actual market exposure in the process.
Observers found this recent market sell-down to have been triggered by pangs of uncertainty and grave concern on US policies under a Donald Trump presidency.
The peso’s slide last Friday contributed to the market’s fall, too. The peso lost 0.59 percent or 29 centavos against the US dollar when it closed at P48.95 to $1. It was the peso’s weakest level since reaching P48.99 to $1 on April 29, 2009.
As a consequence, stock prices have fallen lower as well. The average price-earnings ratio (PER) or price earnings multiple for the 30-component stocks of the PSEi has now fallen to 18.14x. The average price of the All Shares index stocks has also fallen to 17.08x.
It was the holding firms sector that suffered the most last week as it fell 4.42 percent. Next on the list was the property sector with a loss of 3.08 percent.
The services sector came third with a loss of 2.27 percent. It was followed by the industrial and financial sectors with respective losses of 1.87 percent and 1.19 percent.
While stocks in the mining and oil sector have long been relegated as losers, they were surprisingly up 2.73 percent last week. For the entire year, in fact, the sector was surprisingly up 12.47 percent. At such price level, however, the sector had the highest pricing with a price-earnings multiple of 26.81x.
Except for the services sector, which was down 11.82x, the rest were still on positive levels the entire year. In particular, financials was up 11.20x, holding firms up 6.91 percent, property up 5.06 percent, and the industrial barely up 1.24 percent.
Observers believe the average price of the market could now be low enough—or possibly even lower—compared to counterpart stocks in the region like those in Thailand, Singapore and Vietnam, to mention a few equally interesting investment destinations.
While our local market labored when it closed for the week, the US market rallied to post what was described as “its best performance since 2014.” Analysts believed US investors have possibly come to finally accept, among others, Donald Trump’s economic fiscal policies, which evoke images reminiscent of Ronald Reagan’s presidency.
Like Reagan, Trump is pushing for tax cuts in what Democrats deridingly call “trickle down” economics. The simple explanation behind this theory is that by lowering taxes for businesses and wealthy individuals, this will leave them with more cash. In turn, this will spur more investments and hiring. Ultimately, the economy would growth faster to generate enough new tax income to pay for the cuts made.
As reported, the top tax rate made under Reagan was slashed to 28 percent from 70 percent. Such kind of tax cut was accompanied by generous allowable deductions on income. This strategy was said to have “created about 16 million jobs during his two terms, and the economy grew to as much as 7.3 percent.”
Bottom line spin
Our local market has been going up for the longest time. In the process, it has outpaced a lot of other markets within the region and even across the globe. Its fall again below the 7,000-mark last week could just be a part of repricing itself.
As mentioned, valuation is central during times of uncertainty and volatility.