The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Many are ecstatic about the 8,000-plus Philippine Stock Exchange index (PSEi), as they believe it is one of the indications that the Philippine economy is really growing.
For the ordinary Filipino, the growth of the index means little, but for experts, the improved figures at the bourse is not an indicator if an economy is growing or not.
The index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.
From the definition alone, one can say that those in this game are not the common people, but more specifically, those who have excess money to trade and theoretically gamble.
Dr. Benjamin Diokno of the University of the Philippines’ College of Economics, a former budget secretary, said the index upswing being experienced at the PSE, is not a reason to conclude that the economy is really growing.
“This is just part of the hot money that doesn’t tell if a country is growing,” he said.
According to Diokno, the best indicator if the economy is growing is its foreign direct investments (FDI) as these bring many benefits, like additional jobs, taxes, new technologies and increased land value.
“No alternative to FDI. Low investments mean an economy doesn’t look good for businessmen abroad. The longer we stay at the backburner, the harder for Filipinos to catch up,” Diokno, who holds a doctorate degree in economics, added.
Despite an expert expressing dissatisfaction over the index, many bodies have praised the PSE. Some say the Philippine bourse is one of the best performing in Asia. Others say the index will hit 10,000 level by 2018.
“This growth was the fastest in the region next only to the main indices in India but besting the performance of the main indices in the Asean and East Asian markets,” claimed Hans Sicat, the PSE president.
The PSE president should be reminded that the Nikkei index is above 20,000 and no such hype is being said. The American S&P 500 has market capitalization of $19.5 trillion. It dwarfs the capitalization of the PSE, which is about P13 trillion. Both the Japanese Nikkei and American S&P 500 are among the world’s biggest bourses.
The funds circulating within the Japanese bourse are almost totally local money and no much funds from abroad unlike the local bourse that is dominated by foreigners’ funds.
Another drumbeater, Justin Ocampo, First Metro senior vice president for investment banking, claimed that companies were expecting a heightened volatility in the market for the period that they opted to pace down their equity fund raising.
Other praises peddled about the PSE is that its alleged net foreign buying was at P45.67 billion, and 14.4 percent lower than last, year but almost triple the figure registered for the entire 2013.
Total market capitalization reached P13.35 trillion, up 11.9 percent from the P11.93 trillion of end-2013, and 14 percent higher than the P11.71 trillion as of end-June 2013.
Total value turnover reached P993.01 billion, 29.3 percent lower than the P1.4 trillion registered a year ago. Average daily value turnover also declined 29.3 percent at P8.14 billion.
Sicat and other personalities claiming the economy is improving based on PSE index must be reminded that less than 1 percent of the Philippines’ 100-million population are into the stock market, according to the late stockbroker Irving Ackerman.
“It’s very far compared to Japan, which has about 20 percent of people into stock trading,” Ackerman said in a magazine interview. Japan, for Sicat’s information, has over 250 million population.
Romulo Neri, the only technocrat who held five positions during the Arroyo presidency, said the growth in PSE index is not among the fundamentals of growth.
Actually, it gives headache to the BSP as they need to sterilize that,” Neri, who occupied top posts at the SSS, Monetary Board, Budget, Neda and CPBO, explained. “Nothing to be jubilant about the economy remains stagnant. No growth is in sight if we will just look at GIR, hot money and this index,” the former budget and Neda chief added.
Jokes are circulating that the recent visit of President Aquino to the PSE trading floor have caused it to fumble, thus, taking a break from its upswing mode.