P61B in foreign funds left local stock market in 2018

About P60.87 billion in foreign funds exited the local stock market in 2018, reversing the net inflows seen in the previous year, due to jitters over the sharp surge in local consumer prices alongside the escalation of the US-China trade war and the rise in US interest rates.

This net foreign selling was a turnaround from the P56.21 billion in net foreign buying seen by local equities in 2017, when the global economic environment was a lot more benign and investors were gushing over the Philippines’ tax reform program deemed necessary to fund President Duterte’s build, build, build program toward what was promised to be a “golden age of infrastructure.”

This wave of foreign selling weighed down the stock market in 2018 after an initial run-up to record highs earlier in the year. The main-share Philippine Stock Exchange index (PSEi) fell by a total of 1,092.4 points or 12.8 percent to end the year at 7,466.02. In the previous year, the PSEi gained 25.1 percent to finish at 8,558.42.

This thus turned out to be the worst year for the local stock market since 2008, when the main index slumped by 48.3 percent at the height of the US-epicentered global financial crisis. The PSEi had climbed in eight of the previous 10 years. But during the years of decline—in 2015 and 2016—the PSEi slipped by a modest 3.85 percent and 1.6 percent, respectively.

The total market capitalization of the stock market was at P16.15 trillion, lower by 8.17 percent year-on-year from P17.58 trillion in 2017, as the selldown by foreign funds pared the valuation of large-cap stocks.

“It is human nature to want a perfect ending to a story. Looking at the stock market’s performance this 2018, it may not be as good as what most hoped for but it is also not as bad as some feared,” PSE chair Jose T. Pardo said in his message during the special bell ringing ceremony at the local stock market on Friday, the last trading day of the past year.

All sector indices also finished lower in 2018. The mining and oil index was the most battered for 2018, declining by 28.7 percent.

Total value turnover for the year was P1.74 trillion, with an average trading turnover of P7.15 billion a day.

One major domestic concern for the stock market in 2018 was the surge in local inflation, largely due to surging global oil prices and rice supply bottlenecks that coincided with tax adjustments on petroleum products. The inflation jitters also contributed to the weakening of the local currency against the dollar, which further became a disincentive for investors.

During the last trading day of 2018 on Friday, the PSEi closed at 7,466.02, down 16.64 points or 0.2 percent. Year-on-year, the PSEi lost 12.8 percent.

“We didn’t see any fireworks in [Friday’s] trading. Most investors were already in a vacation mode. The litany of concerns outside [the Philippines] added to the somber mood. It seems like this week, we’ll see the same trading pattern,” said fund manager Astro del Castillo, managing director at First Grade Finance.

This 2019, investors are generally more optimistic.

“Rapidly dropping inflation, erasure of crude oil gains in 2018, election spending and continued ramping up of infrastructure and capital goods spending point toward stronger domestic demand and earning prospects, providing impetus for a rebound in the local equity market in 2019,” investment house First Metro Investment Corp. and University of Asia and the Pacific said in a joint research note.

But the research also warned that fragility in global markets could dampen the positive outlook.