Facts:
- The Philippine Composite Index (PSEI) has been going down for two weeks now. In the last 10 days including today, it only blipped up twice (last Friday and today). The general trend is a downtrend.
- The current index value (7,638.13) is now lower that when Duterte started his administration (7,830.55).
- Foreign funds have been going out. This can be gleaned from net foreign activity statistics on PSE website. I also see that from my daily examination of summary of broker net activities provided by my online broker service, with the premise that most foreign funds will use the big foreign brokerages. This fact is also corroborated by comments from professional stock analysts.
- There have been US Fed meetings and attendant analyses and opinions on what will happen to the US rates. There is speculation that rates will rise, which tends to pull out funds from emerging markets back to the US.
Hypotheses on the Index Drop:
- US rate hike concerns. The drop is due to foreign funds pulling out and transferring to the US markets. This explanation was picked by some registered financial planners. One made the pronouncement that Duterte is NOT the cause of the drop.
- Another registered financial planner stated it is the nature of the stock market to go up and down. Effect of politics on stock markets is smaller than what most people think.
- Duterte effect: Investors are pulling out because are uneasy over the unpredictability of Duterte. This explanation was offered by a brokerage president, stock market traders, and bank economists.
- Combination of effects
Take-away Points
- In the absence of complete information, market players at best can only make intelligent conjectures.
- To declare boldly that the drop has nothing to do with Duterte's recent actions and pronouncement is to beg the question or to assume outright what needs to be established. In the absence of statistics or feedback to prove that no single major investor pulled out because of political concerns, the pronouncement is just a matter of faith or political belief.
- While politics normally has little effect on the stock markets on most days, on crucial periods like political crises, the stock market moves in a big way. That was seen during the time of Joseph Estrada impeachment, and several coup d' etat in the past.
- More likely there is interplay of factors. Which factor has the strongest pull, I leave it up to you to bet on.
- The markets feed on emotions and sentiments. To completely ignore them is to risk misreading its signals.
