Just two weeks ago, it was quite difficult to imagine that a Santa Claus Rally would ever happen this year—the first to my long experience, if ever, considering the market’s lingering weakness and pronounced downhill trend.
But the market’s dim fortune suddenly changed following last week’s impressive trading results that set the stage for a Santa Claus rally to happen after all.
The Santa Claus Rally is a seasonal event when stock prices rise in December. The rally is precipitated by the festive mood of the season and the abundance of bonus money, with a good chunk finding its way to acquisition of stocks, thus, driving up prices. Another reason for the rally is the window dressing of stock holdings by institutional investors to improve investment portfolio standings.
The rally is also attributed to—and in anticipation of— the bigger “January Effect,” a general market anomaly wherein stock prices increase as a result of large investors’ entry and repositioning activities.
Unlike the Santa Claus rally (also called the “December Effect”), the January Effect does not always materialize in regular succession.
Critical factors
The impact of these seasonal events in stock prices are fleeting and they don’t have lasting effect on their eventual direction. They are determined, to a large extent, by critical internal and external factors that affect the economic performance of the country and company earnings.
We have devoted the last two issues to the subject of market prospects, which could be summed up as “very optimistic.” That an 8 percent growth rate for 2017 is seen doable so long as inflation and interest rates—the two factors that could critically change the economy’s bright outlook— stay within “low to mild.”
Export volume and domestic consumption are also expected to rise as the peso is seen to continue hovering at 48.50-50 to the dollar.
Seven key industries are likewise expected to do well. These are “agribusiness (high value products), business processing outsourcing, creative industries, infrastructures like “airport, power, roads, rail, seaports, telecommunication and water.
Alongside these industries will be “manufacturing and logistics, mining, travel and leisure, medical tourism and retirement villages.”
In the meantime, what could possibly derail the bright outlook of the economy as seen by our senior economists, are the following: Uncertainties that could be created by the “unorthodox” style of President Duterte, escalation in the deterioration of the Chinese economy, continuation of the El Niño weather phenomenon, deteriorating infrastructure, volatile capital flows, increasing food and fuel prices, a recession in the US, continuing stagnation of the Japanese economy, and the debt crises in the European Union (EU).
To underscore the country’s low capital flows, the Philippines had the lowest foreign direct investment (FDI) in the region last year with only $5.2 billion.
Hong Kong was on top with $174.9 billion, followed by China with $135.6 billion; Singapore, $65.3 billion; India, $44.2 billion; Australia, $22.3 billion; Indonesia, $15.5 billion; Vietnam, $11.8 billion and Thailand, $10.8 billion.
Bottom line spin
Out of the government’s 10-point economic agenda, there are seven key industries that are expected to outperform in the immediate and long-term. They should be the investment areas where we can find growth or value stocks.
The government’s inability to stem corruption, however, would greatly reduce its chances of success to these developmental and economic goals.
Thus, while the present administration has stepped up its “war on drugs” to reduce crime and instill peace and order, its anticorruption campaign should be given the same intensity in order to poster economic growth that should reduce poverty which, in turn, is the root cause of crime and problem in peace and order.