Off to a strong start, but …

The market started the year strong as supported by general investors’ confidence in the continued growth of the economy.

Much of this optimism stemmed from the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) bill last Dec. 19. TRAIN is the first package of the government’s Comprehensive Tax Reform Program (CTRP), which aims to raise revenues to support the administration’s economic development and growth programs.

Foreign investors also visibly provided stimulus to the market’s upward direction, pulling in 50.21 percent of total market transactions to jump-start the year’s first day of trading by buying P3.83 billion of shares during the session and selling P3.49 billion, or a net buying position of P348 million.

Having become net buyers eventually, they generated a relatively lower, yet stimulating weekly trading average of 46.84 percent of total market transactions.

However, due to last week’s higher-than-usual daily trading transaction of P9.01 billion, the market was able to set a new all-time session high of 8,858.07 and a record close of 8,770.

The record highs, indeed, were inspiring. On the negative side, the market’s pattern of daily advances was unsettling.

Notice the market made a daily gain of 165.71 points or 1.94 percent on Wednesday on a total value turnover of only P7.29 billion. But when total trading transactions increased to P8.17 billion the following day, the market gained only 15.70 points or 0.18 percent.
Foreign investors were net sellers initially. In the past, the upward direction of the market usually become stunted or even reversed when foreign investors end up as net sellers.

And while total value turnover on Friday also jumped high to P10.57 billion, or about 40 percent more than the usual daily average of P7.5 billion, the market’s net gain for the day was only 30.17 points or 0.35 percent.

Bottom line spin

Economic experts and stock market analysts forecast that our stock market could climb by another 10 percent in 2018.

This is not hard to imagine since this would only require another 1,000 points from the closing index of the market in 2017 at 8,558.42.

In the past, our market was able to log trading gains of more than 1,000 points in a single year. This should make the given forecast realistic and attainable.

But some headwinds are looming in the horizon that doomsayers say could not just stifle but completely undermine an otherwise good year.

One is the threat of inflation as a result of the TRAIN Act. Analysts feared the bill could possibly affect basic commodities more than what was anticipated by government economic managers.

Next is the increase in interest rates by the Bangko Sentral ng Pilipinas (BSP) in line with the jump in US interest rates. The BSP expressed earlier it could institute at least two rate increases this year.

The impact of oil prices is another factor. They are “hovering at 2-1/2-year high” due to unrests in Iran and other flashpoints already stoking supply disruption concerns.

The present stance of the US on foreign aid funding to fight terrorism is another concern. Critics expressed fear that such move would erode the balance of world stability—and market stability as well.

Not to be excluded is the threat of a regional conflict arising from the polarization of allies in the South China Sea or the “improbable but possible” threat of nuclear Armageddon that could accidentally be triggered by the present tiff between the US and North Korea.

Closer to home is the negative impact the market might suffer from the introduction of a higher stock transaction tax in stocks trading also as a result of the TRAIN Act. Sales tax arising from stock transactions will be raised to 0.6 of one percent from the present rule of 0.5 of one percent.

Skeptics believe this could deter market players from actively trading in the market, such that this policy might shrink rather than expand the width and depth of market transactions.