Bear season

/ 05:07 AM June 26, 2018

It is tempting to dismiss last week’s descent of local stocks into the bear market territory, which represents a decline of at least 20 percent from its last peak. After all, less than one million Filipinos have their money invested in shares of local companies listed on the Philippine Stock Exchange, and
most of these retail investors belong to the upper and middle classes. A stock market rout isn’t something that sends people rioting in the streets.

It is also tempting to dismiss the market’s sharp decline as something that hurts only the elite who control the country’s largest companies that make up the bulk of the stock market’s capitalization. These tycoons and captains of industry, after all—these “oligarchs,” as the present administration likes to describe them—are the ones who mainly absorb the hits of a stock price decline.


Unfortunately, the estimated $40 billion in market value at the PSE that has so far been wiped out this year affects not just the richest in the Philippines, but also the poorest. Especially the poorest.

That’s because a stock market rout affects almost all listed stocks, big and small alike. Lower stock market prices mean some companies will find it hard to raise money for their expansion plans and, consequently, may put these plans on hold. That means fewer jobs will be created, or worse: Jobs may eventually be cut if weak stock prices make their way across the economy and adversely affect the high level of consumer spending on which the Philippines depends for growth.


More importantly, the performance of the stock market is often viewed by investors as a barometer of a country’s economic growth prospects. Declining prices generally mean that buyers have less faith that a particular company will do better in the near future, hence the heavy selling of stocks to move their money elsewhere.

To be sure, there are fundamental, nonpolitical reasons why local stock prices are dropping. For one, the US Federal Reserve—the world’s largest and most influential central bank—has been, since 2013, unwinding its so-called “quantitative easing” policy that was put in place to counteract the global financial crisis of 2008. With that policy now being unwound, the era of “cheap money” is over, and funds are trekking back to developed nations as yields on the less risky dollar-denominated investments rise once more.

Another reason is that the Philippine stocks are, even after recent price declines, still some of the most expensive in the region. Investors, both
local and foreign, have bought up local shares so much in recent years that their price-earning multiples stand at around 18 times compared to the region’s 15 times. That means, at the average Philippine company’s earnings for this year, it will take an investor 18 years to recoup the price he paid for the stock.

The uncertainties brought about by the actions of the Duterte administration are also a factor weighing down the bourse, with some investors wary of its brusque methods and unconventional policies.

There are, however, two items of good news in all this.

The first is that weak share prices are a great opportunity for Filipinos to earn from the stock market. Filipino corporations, big and small, have so far not been affected significantly by the wild gyrations of financial markets. Cheap stock prices present investors the chance to buy in at lower prices. Second, the administration’s economic managers are well positioned to address the concerns investors have brought to the fore with their act of “voting with their feet.”

There’s little the Philippines can do about high international oil prices or the looming global trade war, but Malacañang can mitigate their impact by removing roadblocks to more inclusive economic growth. For one, it should fast-track the implementation of the P9-trillion “Build, Build, Build” infrastructure scheme. Despite all the hype, the project has, in fact, gotten off to a slow start. Decisively resolving the bottlenecks of these infrastructure projects—and creating hundreds of thousands of jobs in the process—is a worthy way of redirecting the Duterte administration’s forceful political hand.


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