Jittery About What Is Happening In PSEi? Check What The Expert Say....Rejoice!

This is a FB post by FAMI Mutual Fund Expert Gus Cosio


Apparently, some foreign funds have programmed themselves to lighten up on emerging markets. It is plain to see that a good number would be selling Philippine stocks considering that many of the index stocks have gone up quite a lot. I guess the anxiety always arises as to whether these foreign funds will come back or not. To my mind, it is not as important as it was in the past.

Over the past few years, we have been seeing the greater importance of local investors in the market. This is the way it should really be. In the past, fund managers chose to ignore the Philippines because the market was very shallow in the absence of a strong domestic investor base. Nowadays, this base has become wider to the extent that local investors already out weigh foreign funds by a ratio of 7 to 3. I reckon, this ratio should even tilt in favor of the locals because the local participation has been enhanced by the accessibility of investors to mutual funds and UITFs. The industry numbers bear this out.

Why is this important to us? As far as I am concerned, this shifts the opportunity to local investors with this correction phase of the market. Stock prices were fueled by sustained foreign buying since the beginning of the year and many local investors or investor wannabees got left far behind. Many did not want to enter the market because it may have gone ahead of itself. What this correction tells us is that it has.

Fortunately, signs are not present that we should panic. What drives markets into crashes are bottlenecks that arise in the underlying macroeconomic backdrop. If we look at the past 20 years, it has been driven by bottlenecks in the banking system either from domestic or foreign causes. Domestic causes tend to bring about bear markets that last very long such as the Asian Financial Crisis that endangered a number of Philippine banks. That brought about a 7 year secular downturn for Philippine stocks. Ironically, when the Global Financial Crisis struck in September 2008, the local market managed to have bottomed out 6 months later in March 2009. such was the case because the local banking system was very sound and there were no bottlenecks created locally.

Today, we have an even stronger banking system and enough savings in the economy to support a huge amount of domestic investing activity. Furthermore, we have a credit rating that will encourage those who have otherwise avoided our market to come and sink their teeth into Philippine stocks. Finally, we have GDP growth that is now the strongest in the region and even in the globe for that matter. All these factors tell me that rather than be downtrodden by this decline in stock prices, we should be jubilant because over the next time period, we can buy our market on the cheap. Isn't that good cause for rejoicing?