It seems that the 5,300 or so psychological level of the Philippine Stock Exchange index (PSEi) remains to be the market’s “Maginot Line,” an impenetrable zone, so to speak.
When the market ended trading last Friday, it closed lower at 5,285.91. Consequently, the market fell to an equivalent loss of 66.36 points, or 1.27 percent, on a weekly basis. This is not the first time that the market stopped and closed lower as it hit the 5, 300 level.
After an almost one-month rally in June that amounted to an advance equivalent to 406.21 points, or 8.3 percent, the market hit the all-time record high of 5,369.98 on July 5. The following day, however, the market reversed direction and immediately fell. From then on, it went to a slow and continued fall. This resulted in the market losing as much as 217.42 points, or 4.22 percent, in 20 days as it settled at 5,152.56 on July 26.
Regardless of intervening events that can be attributed to explain the way the market behaved within the period—again, which could be any of the three major external factors that have been bugging the equity markets around the world, namely, the still very fluid credit situation in Europe, the felt slowdown in the Chinese economy and the threat of sliding back to recession by the US economy—the fact remains that the market stopped short of breaking through the 5,300 level for the second time.
Considering August to be a low-key month—believing or not in the Chinese superstition of the “Ghost Month”—it seems that the 5,300 zone will serve as a resistance level in the meantime.
Significant developments
One of the factors that sent the market lower last week was the big price loss incurred by Philex Mining Corp. (PX) shares on Friday. The mine operation of the company was closed owing to an accident that involved the spillage of toxic wastes from its tailings pond, which, according to news reports, “put to question the structural integrity of one of the country’s oldest mines.” PX shares fell by as much as 7.59 percent.
According to additional information, Philex’s main producing Padcal mine in Tuba, Benguet, “located near the major northern mountain resort of Baguio,” was closed until the safety and integrity of its tailings pond is assured. To quote government pronouncements, the tailings pond of Philex had an accidental discharge that “threatened to contaminate the aquatic life and quality of water of the Agno River.”
And while it was claimed that the mining waste may not have affected the waters of the Agno River and its tributary leading to the San Roque dam, no estimates had been given by Philex as to how much had been discharged. Also, the government regulatory agency in charge of the situation has not fixed any date yet as to when the mine will resume operations. So far, the operation of Philex in the Padcal mine has been suspended since August 2.
What could drive down further the share price of Philex is the planned investigation by the Department of Environment and Natural Resources’ Mines and Geosciences Bureau (DENR-MGB) to look into any violations of mining and environmental laws that have been committed by Philex.
Philex said that the accident was triggered by Typhoon Gener, which brought so much rain in the northwest portion of the country that as of last count by the National Disaster Risk Reduction and Management Council (NDRRMC) was responsible for the deaths of 45 people.
Almost simultaneous to this development, the government has confirmed that it will go ahead with its plan to sell part of the Food Terminal Inc. (FTI). The public bidding for FTI, however, was moved by the Privatization and Management Office (PMO) to August 14 from August 8 to give interested parties additional days to conduct their due-diligence review and be given ample time to submit required documents. Only 74 hectares of the complex will be sold while the balance of 103 hectares will remain under government control and ownership.
The base price of P10.25 billion has been set by government for the 74 hectares. Seven developers have already pre-qualified to bid. These are Filinvest Land Inc., Robinsons Land Corp., SM, Empire East Land Holdings Inc., Rockwell Land Corp. and Century Properties Group Inc.
Bottom-line spin
On technical and fundamental considerations, it looks clear that the market does not have yet what it would take to possibly break out from the “5,300 zone” within the month of August. This period is seasonally less active than other months. But it has served in most instances as a consolidation period for the market.
The Philippines enjoys a comparative advantage over other countries in the current global downturn. Accordingly, it has a “stable fiscal deficit, strong English skills and a belief in education.” For the Philippines to benefit from this comparative advantage, however, it was observed that this would largely “depend on how the government makes the most of its opportunities.”
Foreign observers recommended that the government pursue “structural transformation.” Foremost to this recommendation was for the country to undertake some changes to existing “laws on zoning, taxation, competition, labor and trade.” Current laws on these matters were said to be more responsible in discouraging investments from foreigners more than the often-blamed foreign ownership limits in the 1987 Philippine Constitution.
Another aspect integral to structural transformation is on the computerization of government processes in order to prevent direct contact with the bureaucracy. One simple example is the practice of requiring people to “show up at the Department of Trade and Industry and apply for permits.” As pointed out, this procedure encourages patronage and corruption as they expose people to direct contact with the bureaucracy. It was observed that “if the procedures were online, it would be much simple, quick and transparent for everyone.”
Another example is the integration of terminal fees to the price of airplane tickets. It is said that “we are the only country that collects a separate fee when it can just be billed directly.” These old procedures do not only entail personal inconveniences but increase the cost of doing business,” according to the same source.
Another recommendation is for the government to also engage in intensive infrastructure activities. One suggestion that can bring development in the provinces and decongest Metro Manila is the infrastructure project connecting the North and South Luzon Expressway. But as further observed, the government must change to hasten its decision-making process. The current procedure has bogged down infrastructure projects.
If these few examples that observers cited are not properly and timely acted upon, it is believed that the country may again miss its opportunity to become an attractive center of investment arising from development and economic growth. And if these issues are partially or belatedly addressed, the market may not even achieve the end-of-the-year 5,500 mark forecast of most market analysts and this is also just 200 points away from the current “Maginot line” of the market.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph, densomera@msn.com or at www.kapitaltek.com.)