Must show more grit

Last week, the stock market showed more strength than it had previously, gaining 101.30 points, or 1.15 percent. This meant it was just 53.26 points shy from the all-time high of 8,969.18.

The market’s climb was obviously powered by the inflow of more money during the week. Total value turnover on Monday was only at P5.58 billion. This went up to P7.40 billion on Tuesday, hitting P9.64 billion on Wednesday and P9.98 billion on Thursday. By Friday, a total of P10.02 billion changed hands during trade.

There was also vigorous trading on the part of foreign investors, further propelling the market’s performance. They contributed only 42.36 percent of total market transactions on Monday, gradually capturing 57.05 percent on Thursday. Their weekly average was 53.10 percent of total transactions.

Notice, too, the trading direction: The foreign investors were net buyers in all of the five trading days of the week.

Notwithstanding this display of strength, however, the market’s overall vitality didn’t appear to be as solid as other market data would show.

Bottom line spin

Under present circumstances, the market’s relative weakness and erratic behavior could still be traced largely to low-value turnover.

A high-value turnover is not a guarantee in driving stock prices up, however, it can do the reverse and push prices down. Last week’s trading results continued to reaffirm the market’s peculiar condition.

For quite some time, the market was more prone to moving south whenever total value turnover hit P10 billion or less.

One technical explanation is that market bears, especially in this market with such magnitude, may often outnumber market bulls.

On a fundamental basis, our market is still actually small when compared to its peers within the region. This will also explain why we have the smallest amount and percentage of foreign investments.

Our market is only valued at about P18.14 billion. Making a loose computation of the ratio of market transactions between domestic and foreign investors, the latter can only account for a measly 2 percent.

The ratio could, however, improve as government investment incentives are put into place and development programs develop traction with more funds pouring in.

Last week, the Department of Finance announced the successful placement of its latest international bond issue amounting to $2 billion. Maturing in 2028, the yield for the bonds was pegged at 3 percent.

As a result of Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion law, the first of up to five planned tax reform packages designed to make taxation fairer and yield more revenues, strong market activity should be in the offing.

Also today, the Philippine Statistic Authority will be announcing the country’s gross domestic product data for the fourth quarter.
Over the weekend, there were already talks that the economy had surely picked up during that quarter.

Moody’s Analytics even jumped the gun, so to speak, when it issued a favorable figure last Friday, fixing the full-year growth of the country within the government’s forecast of 6.5 to 7.5 percent.

Again, domestic demand remained the major driver of growth.

With this knowledge, start looking for stocks of companies that thrive on domestic demand. Focus, too, on companies that produce merchandise exports that helped boost the economy’s expansion.