A major factor that drives the direction of the equity
market is the foreign funds that is coming in and going out of the Philippine Stock
Market.
Being called “ hot money” because of its ease to move in and out of the
financial market, foreign funds has the ability to push downward the stock
market at the lowest possible you can imagine once they decided to sell in big
volume. This was exactly what had happened during the previous two months.
Likewise, if these “hot money” decided to stay, it can stimulate
the stock market in a “bull run”. You and I were witnesses where we saw historic
series of new “highs” starting the current year.
It is in May 15, 2013 when the Philippine Stock Exchange
Index (PSEi) reached that historic milestone of all-time record peak of 7,403.65.
However, after this feat, the main index plunged at unexpected lows after
foreign funds started to withdraw its investments following the US Federal Reserve
hinted it may scale down its QE program end of the current year.
Based on the records of the BSP, the net outflow of total foreign
portfolio investments last month were around $22.98 million while on May 2013, the
amount were bigger at $640.84 million.
These data are enough proofs to support
why we are now playing in the stock market territory where “Bears” are Kings.
The table below shows the movement of the main index in relation to the foreign buying and selling movement of the Philippine Stock Market.
Following US Fed Chairman Ben Bernanke’s congressional
testimony on May 22, 2013, the world economists’ interpretation that the Fed
may taper its monetary stimulus soon triggered a high scale foreign selling not
just in the Philippine Stocks Exchange. This scenario was the focal point of the
Philippine stock market plunge below the 7,000 level.
On a commentary on June 19, 2013, the Fed announced it is
likely to slow down its bond-buying program later this year and will end early next year due to
improving economy. However, the fear of traders and investors that the scaling
down of the stimulus will end sooner once the threshold of 6.5% unemployment rate will be met earlier; have fueled the continuous selling of foreign investments.
Ben Bernanke’s announcement two days ago that the US Federal
Reserve's “easy-money” policy is still necessary due to weak job market and low inflation
rate, sent a likely positive note in the Philippine Stocks Exchange.
Today, all the Philippine Stock Market indices rebounded back in green while the
main index broke anew at the 6,500 level to close the trading week at 6,574.21.
Will this momentum continue and will we see another bull run
on the succeeding days?
That remains to be seen.
Good luck to everyone!