Hate ’08???

By Francisco Liboro

Nine months into the year and we’re all still sitting and waiting for the promise of a market recovery to materialize. Like the mythical phoenix, we have been longing to see the Philippine Stock Exchange Index (PSEi) rise from the ashes of failed uptrend lines and multiple breakdowns and once again resume its stellar performance of just a year and a half ago. But this quixotic quest for market rejuvenation has been frustrating and downright irritating, to say the least.

Over the past nine months, the market has made numerous attempts (I count nine major ones) at breaking out of the downtrend that has gripped investors since October of last year. The first eight never had enough legs to sustain their respective rallies and eventually succumbed to investor cautiousness and profit taking. The present rally, which began in late June, appears to have enough steam and momentum to break free of the bear hug. It has already broken out of the major downtrend line last July 30, leading my brokerage institution’s research unit to advise our clients that the bottom may have already been hit.

Still, after months of frustration, I cannot so easily discard the cloak of gloom that has covered us all, analysts and investors alike. Notwithstanding improving technical indicators that confirm the momentum in the present rally, fundamental indicators remain in a state of flux, influenced largely by external factors such as the US economy, oil (and consequently fuel) prices, other commodity prices and the US dollar’s strength and/or weakness). After all, fundamentals such as these are what will guide analysts in arriving at their forecasts and subsequently their trading recommendations. These will in turn provide the basis for future market rallies or reversals.

But as the title of this column states, we are not going to analyze where the market is headed over the short or even long-term. Instead we ask the question on whether we hate 2008, market-wise of course (and only with regard the equities market, to be more specific). So do we?

There are a number of reasons why I, at least, do hate ’08 but I will dwell only with the more significant ones. For starters, of the nine months to date, only three months have posted Net Foreign Buying. From May to July, the market booked Net Foreign Buying of around P4.8B. Meanwhile, the other six months to date (January to June, and from September 1-8) have seen Net Foreign Selling of around P27B. For the entire period, therefore, the market has seen Net Foreign Selling of about P22.2B. If anyone wants to talk about a market that has been shunned, it might as well have been ours.

The fault does not fall squarely on the shoulders of the Philippines but largely, I would think, on the misconceptions of foreign fund managers on the real strengths of our economy and the market as well. Nevertheless, the sustained outflow of foreign portfolio investment from the market (and not necessarily from the country since our own analysis does not show any foreign capital outflows from the country’s banking system) has always overwhelmed local buying at its strongest and eventually leads to failures of previous rallies to break out of the major downtrend line.

Secondly, the fickle mindedness of US market investors is confusing. Early in the year, when oil spot prices spiked to $140, markets throughout the world posted major declines, led by the United States. As the oil price bubble began to burst at the seams, markets rejoiced and quickly staged their own respective recoveries. That sounds reasonable. However, recently, investors have begun to fear that falling oil prices are symptomatic of a weakening economy and as a result have now started to look at these as a negative. What gives? Are lower oil prices a positive or negative factor? How frustrating can this be? It’s almost become like a “damned if you do; damned if you don’t” type of analogy. I think investors in the Philippine market should not be swayed by how foreign investors see the effects of oil prices on other major economies but rather see how oil prices will affect specific markets, such as ours. After all, there’s only one way this factor will affect our economy, right?

At the end of the day, my main reason for abhorring 2008 is on what it did to the dreams that we all nurtured in 2007. The “blue sky” scenario we believed was in store for the market was actually playing itself out already before all these sub-prime and other problems external to the Philippines hit. Problems that injected fear and uncertainty into the hearts of investors in levels not seen since the mid-80’s. I hate ’08 for the fact that the growth in the Philippine stock market that was due us was robbed from us at a most inopportune time. We were recovering and had the rug pulled out from under us. It has been a year of frustrations and setbacks and I will not regret seeing the end of it come December 31.