It’s not about being right, it’s about making money

Even with a shortened trading period of four days last week—in observance of the birth anniversary of Philippine hero Andres Bonifacio on Friday, Nov. 30—the market still managed to make a major advance equivalent to 88.11 points or 1.59 percent on the main index at 5,640.45 which, incidentally, was another all-time high.

The market has been posting record highs since Friday the other week, all the way to Thursday last week.

What fueled this strong performance of the market was the news on the economy’s third quarter growth record.  It surprisingly surpassed all expectations as it grew by 7.1 percent, logging a record pace regarded as “the fastest ever posted by the economy in the last two years.”

In this connection, National Economic Development Authority (Neda) Director General Arsenio M. Balisacan additionally described it as “the highest in the Asean.”

In comparison with neighboring countries, the Philippines indeed did very well.  Indonesia, the biggest economy in the region, was second only with 6.2 percent.  This was followed by Malaysia and Vietnam with their respective performance results of 5.2 percent and 4.7 percent, to take third and fourth place.

Thailand followed as far fifth with 3.0 percent; and Singapore, lagging much further behind to be the region’s bottom dweller for the period, with only 0.3 percent.

China, however, remained as the top performer for the whole of Asia with its 7.7 percent GDP growth record in the third quarter.

Source of growth

On the “demand side,” more than half of the country’s growth in the third quarter was said to have come from household spending which was enhanced, accordingly, by the “slower movement of prices, as headline inflation averaged 3.5 percent from July to September 2012.”

Also, household expenditures were apparently stimulated by the “continuous improvement in consumer confidence.”

As reflected in the report of the Bangko Sentral ng Pilipinas on its “Consumer Expectations Survey in July,” respondents expressed approval for the economic direction of the country.  They “cited greater availability of jobs and more employment as one of the factors for their positive outlook.”

Contributory to higher household expenditure was “the steady inflow of remittances.” This was supported by the continued rebound of the export sector which, as previously reported, stood at negative 14.8 percent in the same period last year.

Per findings, remittances from overseas Filipinos “grew by 4.2 percent in peso terms” while the export sector grew by 6.7 percent driven by “the surge in the overseas sales of metal components (466 percent), telecommunications (473.8 percent), and office equipment (106 percent).”

In his briefing with the press, Balicasan further reported that export receipts of semiconductors and electronic data processing equipment grew to 8.3 percent from a negative 1.8 percent in the same period last year.  He went on to explain that this may mean that manufacturers have been stocking up on intermediate inputs in anticipation of a recovery in the global demand for electronic products.

Per record, too, growth in the export of goods was reinforced by the increase in the export of services which grew by 7.6 percent due to growth in the business process outsourcing (BPO) sector and “miscellaneous services, which grew by 10.2 percent, up from 6.6 percent last year.”

The economy also experienced what Balisacan described as “a huge turnaround” in connection with the spending for construction of physical capital.  It increased by 24.3 percent from a negative 8.8 percent of the same period last year.

Growth was led by both private and public construction.  Public spending on construction grew as “backed by the 38.4-percent expansion in government’s capital outlay for roads and irrigation projects.”

Private construction was generally accounted for by “the demand for office space due to the strong outlook of the BPO sector [and] of residential properties” by individuals riding on the favorable condition of the economy.

To cap the report on the demand side, government spending also expanded by 12 percent largely due to the increase in the cost of personnel services which “grew by 11.9 percent due to the implementation of the last tranche of the Salary Standardization Law.”

On the “supply side,” services had the biggest share.  As reported, it amounted to about 58 percent of GDP led by trade which grew by 7 percent.

Transportation grew by 5.5 percent.  The decline in domestic petroleum prices was cited as the main reason behind the said growth.  Communication storage, on the other hand, additionally boosted further growth with its 9.6 percent performance record.

Agriculture also posted good performance.  As described in the report, the sector experienced a “big increase in palay and corn outputs following the government’s food security program.”

For the industry sector, manufacturing grew at 5.7 percent.  This was “a marked improvement from the 2 percent increase in the same quarter last year,” Balicasan said.

“Hopefully, the industry would expand much faster” with the manufacturing sector to provide higher quality jobs that are also more stable and remunerative, he added.

He expressed the same sentiments with the fishery sector which was still a big letdown up to the third quarter, as it registered negative growth.

Due to the foregoing report, popular GDP growth forecast for 2012 has been adjusted to 6 to 7 percent.  The government, on the hand, is sticking to its original forecast of 5 to 6 percent.

Bottom line spin

Amid this performance of the economy, our local market has been trading better than most equity markets in the region and the world over.  Its record close of 5,640.45 last week was the market’s 32nd high established for the year.

When it closed at 5,424.51 in October, too, the market has chalked up a total of 215.94 points or 3.98 percent as of the end of trading last week at 5,640.45.

At last week’s trading close, too, the 2012 popular market objective of 5,600 was breached in the process.  With the way our local market continues to be influenced by trends on Wall Street, it is very likely that the market will continue to advance.

This advance, though, may not be broad or across the board as the market is propelled by a select number of stocks only, which could be indicative on how the economy is working.  As such, some factors may now be working against its further expansion.

For one, the peso is becoming too strong.  Last Thursday, the peso stood too high at P40.90 to the dollar.  This may affect the competitiveness of local products and services and, ultimately, consumer spending ability if not properly addressed.  Added to this, the possibility of cutting interest rates—which reciprocally augurs well for the stock market—would lessen as the economy expands.

The government should, therefore, act faster on urgent measures to support the higher growth rate of the economy and to continue to enjoy its benefits.  Until then, the market may suffer from what is called “anti-climatic outcomes.” Like in the stock market, trading “is not about being right but about making money.”

(The writer is a licensed stockbroker of Eagle Equities Inc.  Market Rider can be reached at [email protected], [email protected] or www.kapitaltek.com)