Behind the market’s advances

Still on the fifth month of the year, trading activity has already made the main Philippine Stock Exchange index, or PSEi, to rise by as much as 20 percent through 19 record advances, the last of which was set on Thursday when the market hit the 5,300 level.

As a result, the market is said to be already trading at the price earnings (P/E) multiple of 17 times of 2012 earnings estimates, a price level described by market analysts as “very expensive.”

Last Friday, though, the market closed lower by 2.86 points from the last record close of 5,300.41 as it succumbed to profit taking from “weaker hands” (short term investors) and closed at 5,297.55.

As if to further stress which sectors are expected to perform well this year, Bloomberry Resorts Corp. (BLOOM), Megaworld Corp. (MEG), Alliance Global Group. Inc. (AGI), Philippine Long Distance Telephone Co. (TEL) and Ayala Corp. (AC) emerged the top five most actively traded stocks last Friday.

Government reforms

Also last Friday, before the delegates and guests of the 45th annual meeting of the Asian Development Bank’s board of governors, President P-Noy claimed this was all happening as a result of the reforms his administration had be instituting since his ascendance to power.

He said his administration had made a headway in the last 22 months, putting into place a “program of transparency, accountability and prudent spending.”

On prudent spending, the President said that “due to strict adherence to public spending rules,” the government saved some P6.14 billion last year. As of April 15, he said, “the public works department had bid out 92 percent of the 2,139 projects in the pipeline this year.”

Needless to say, the savings found their way to reinforce and support projects that enhanced productivity such as rice production. The Department of Agriculture reported an unexpected bumper rice crop this year. With this, he said “rice production is expected to triple by the end of 2013 and weather permitting, the Philippines would be a net exporter of rice in less than a year.”

In the case of the Conditional Cash Transfer (CCT) program, a part of the government’s strategy to deliver core primary services to the poor, which is also a component part of his administration’s “inclusive growth” agenda, he reported that it was now “benefiting the neediest of Filipinos.”

“Inclusive growth” is a term made popular by India in 2006 which contributed to the significant alleviation of poverty among its populace that redounded to its being one of the fast-growing economies in the world.

In direct criticism and obvious reference to issues raised by critics from the past administration on the subject, he went on to say that “gone are the days when the funds you funnel to our country will end up like water leaking through a broken pail.”

Explanations on CCT

The CCT program is one of the strategic tools for the distribution of economic gains achieved in the program of “inclusive growth” by the government. It is devised to reduce poverty through a welfare program which, economic experts say, is dependent on or conditional upon the receivers’ situation, action and/or circumstances.

Based on certain requirements, the government will transfer some amount of money to a family or household head. This may include any of the following conditions or situations: “enabling the children to enrol in the public school, submitting children for regular medical check-up, receiving vaccinations, or the like.”

Explained in another way as a source put it, the CCT “isn’t about infrastructure, or making necessities like food, water and education more readily available. It involves handing out cash directly to those who need it.”

Described and explained further by the result of another study on CCT program as follows: “At first glance, simply handing out cash to the poor may seem naïve.  When cash-transfer programs, as they’re known in the parlance of international aid, first rolled out in Latin America in the 1990s, they were met with skepticism, especially from development agencies more intent on structural reform than redistributing wealth.”

“More than a decade later, however, evidence shows that even modest payments grant the world’s poorest the power to make their own decisions; it also indicates that they make smart choices, especially on matters of health and education.”

“Today, cash-transfer programs are thriving in some 45 developing countries and helping more than 110 million families. The World Bank has put at least $5.5 billion into nearly a hundred different projects.”

President Aquino reminded the 4,300 participants in the ADB confab of the positive reviews the country had received from global rating agencies since the start of his term.

He said, “We have had six positive ratings actions since we took government a little less than two years ago, a stark contrast to the single upgrade and six downgrades in the nine years of the previous administration.”

“The Philippines now has a BB+ rating from Fitch Ratings, its highest ratings at one level shy of investment grade. It also has a BB rating from Standard & Poor’s and a Ba rating from Moody’s Investors service, both two notches below investment grade,” where the market “experienced all-time highs 27 times” in his 22 months in office, he added.

In conclusion, Aquino declared that the country was “now open for business” with a “level-playing field” for investors and businessmen.

Bottom-line spin

The President and his team deserve some credit in their current efforts.  But I’m frustrated and discouraged by their lack of urgency in resolving the longstanding policy question affecting the mining sector and its allied industries. So much money has been spent—even before their time—yet, it seems they are as well sadly affected by the very political factors that had prevented the country from living up to its potentials in the past.

(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)