PSE: The road to 8,000 by Sir John Mangun

PSE: The road to 8,000

• Column
• News
• Opinion

by John Mangun - April 20, 2015

0 2

EVEN if you do not invest in the local stock market, the fact that the Philippine Stock Exchange Composite index (PSEi) reached a historic high at 8,000 on April 6 is significant to the nation.

For the all the useless noise that surrounds stock-market movements, the market does partially reflect a country’s financial situation when viewed in the context of everything else that is going on. Over-estimating the impact of the stock market is foolish; under-estimating that impact is ignorant. The stock market is just another important aspect of the economy.

The stock market is not like a thermometer measuring temperature or a clock counting time. The stock market is like your dog barking late at night in the garden. Is it a cat out for a midnight stool or a burglar trying to break in your house?

Some of us have been saying for some time that the PSEi would move to 8,000. On July 21, 2011, the title of this column was “PSE at the High; Can It Continue?” The market closed at 4,480 on that day. I wrote, “Over the next decade or less, the value of the Philippine Stock Exchange is going to double. Yes, we will see the index at 8,000 and higher.”

It was an easy call; I don’t think I am the 21st-century stock market Nostradamus.

I wrote, “Because we constantly think about the GDP [gross domestic product] growth rate on a quarter-to-quarter or year-to-year basis, we lose the big picture. Look, the PHISIX has doubled, up 100 percent, since 2005. How much is the total GDP up? This may surprise you: 50 percent. If the total economic output of the Philippines is up 50 percent since 2005, why should it shock you that the stock market is up 100 percent?”

Part of losing the big picture is the nonsense and useless noise that passes for the daily stock-market commentary that you are being fed. The explanation of stock price movement, up or down, 90 percent of the time is because of “global [or regional] market movement”, “fresh leads” or the lack thereof, and the new favorite word of the experts, “catalyst”.

Since the stock market is “news-driven,” according to the experts, I looked back at the headlines in July 2011. All of these newspaper headlines were printed within a week or so of July 21.

“Philippines seeks modern US military hardware.” “Philippines, China agree to keep peace in West Philippine Sea.” “Philippines wants Southeast Asian unity on sea row.” “Abu Sayyaf kill seven Philippine soldiers: Military.” “US Maintains Quiet Counterterrorism Effort in Philippines.” “Foreign business still cool on Philippines.”

This is my favorite business headline from July 2011: “Philippine stocks getting ‘expensive.’”

It would appear that not many of the “fresh leads” have changed between PSEi 4,480 and PSEi 8,000.

The PSEi did not go straight up to 8,000 from my July 2011 prediction. In fact, it went up and down several times and finally made its breakout at 4,500 near the end of 2012. With the exception of the 2013 price correction, the upward stock price movement has not faltered much.

But what was the catalyst of breakout at the end of 2012? Here are more headlines from that holiday season. “Philippines: Typhoon Bopha leaves over 270 dead.” “Philippines hits China plan to fortify Sansha.” “The Philippines: Breakthrough in Mindanao.” “Six hurt in Philippines bus bombings.” I assume stock prices were still “expensive” although I did not find a headline to that effect.

You can say PHL has changed a lot since the end of 2012. The government credit rating is significantly higher. The perception of corruption is way down. Inflation is low and the government financial position is very good. That is all true.

In July 2011 the peso exchange rate was 43.80, so not much has changed. Inflation then was 4.5 percent and it is down and interest rates are much lower now from 2011’s 4.5 percent. The “gloom-and-doomers” and the “bubblers” are going to say that the stock market being up is only the result of Western money printing. I am too bored arguing that point again and again.

But here is a fact that requires little discussion. The PSEi has nearly doubled since 2011. The Philippine GDP has increased by 60 percent from $168.33 billion to $272.02 billion at the end of 2014. With the exchange rate nearly the same now as then, thosenumbers are comparable. The per-
capita purchasing power GDP went up 17 percent between 2005 and 2011; it is up by 19 percent since 2011.

I will say it once again, now about PSEi 8,000; “why should it shock you that the stock market is up 100 percent?”

E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com.Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.