The market’s path in 2018

All the positive news that could boost the market occurred last week. But instead of advancing, the market meandered, gaining only 32.34 points or 0.39 percent in one week, despite a larger-than-normal weekly aggregate value turnover of P37.11 billion.

Debt watcher Fitch Ratings upgraded Monday last week the country’s credit rating from BBB- to BBB, a stable outlook, citing good macro-economic fundamentals. Fitch especially noted that the administration’s bloody war on illegal drugs and criminality has “not shaken investors’ confidence.” Fitch’s rating is now similar to those of S&P Global Ratings and Moody’s Investors Service.

On Wednesday, another good news unfolded. Congress ratified the Tax Reform for Acceleration and Inclusion (Train) bill, which seeks to cut income taxes while adding to the levy on fuel, cars, mining, coal and tobacco.

The first package, set to be implemented by Jan. 1, 2018, is expected to generate P130 billion—an amount considered crucial to funding the government’s banner infrastructure program called “Build, Build, Build”.

Last Wednesday, the Asian Development Bank (ADB) also joined in the merrymaking, upgrading the 2017 and 2018 economic growth outlook for the Philippines. ADB expects the country’s gross domestic product (GDP) to grow at an average 6.7 percent for 2017 and 6.8 percent for 2018.

“This outlook assumes that growth in the government’s infrastructure program will accelerate, supported by improvements in budget execution, with more large investment projects under way,” ADB said.

This not only means the Philippines outmatching India, Vietnam and other Asian countries, it also places the country’s growth performance second to China’s 6.8 percent.

Bottom line spin

With such rosy outlook, we can fairly assume that our local equity market will further get better, stronger and healthier.

But having seen how the market reacted, a bull run may not be in the offing. Perhaps, fundamental risk factors are keeping investors guarded.

The most serious of these factors are political in nature. One is the kind of resistance put up by the mainstream political opposition. Going over their maneuvers, they tend more to be destructive than constructive.

On second thought, the brand of leadership demonstrated by President Duterte since he rose to power may also have something to do with this behavior. The game he is playing to put forward his administration’s agenda can be ascribed as the zero-sum game. This style by the President can lead to the demise of the mainstream political opposition.

A zero-sum game is simply “a situation in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero.”

This tenuous situation with the opposition is further complicated by the presence of other politically charged concerns such as the administration’s renewed hostilities with the New People’s Army, war with terror groups, and stalled talks on the autonomy of the Moro Islamic Liberation Front and the Moro National Liberation Front.

Note, too, that we are losing foreign investors’ money because of the recent increase in US interest rates. This could also explain why foreign investors have remained net sellers.

Bear in mind, therefore, that political and economic risk factors could drastically alter the equity market’s trading path in 2018.