The month of August which normally occupies most of the ghost month is almost over. True to form, the ghosts took their toll on local stocks. The last two weeks although short in terms of number of days showed us the biggest declines in both number of index points and percentage points.
I think many were led to suspect that there may be another contagion ahead of us, seeing that India has entered into crisis mode with its currency seeing a sharp depreciation. The same thing goes for Indonesia whose currency similarly has been battered on account of rising current account deficits. To aggravate the region’s negative sentiment, Thailand has sunk into recession while Malaysia is facing a credit ratings downgrade. Of course, China had been on a slowdown mode for almost 5 years now.
From a global perspective, Asia ex-Japan looks pretty dismal. If you were a fund manager sitting in New York, Boston or Edinburgh, you would surely be very skeptical and even anxious about keeping your asset allocation in Asia. Logically, one would assume that from positions of overweight or even neutrally weighted, these fund managers would gradually be shifting to underweight or flat positions. When such moves are in their early stages, they do not differentiate among markets. As they indiscriminately reduce exposure across markets and because the Philippines is small compared to India, Indonesia and Thailand, stock prices here will just go with the flow.
What is encouraging is that in spite of heavy proportionate selling by foreign funds, prices have managed to recover from the lows. We’ve had eleven days of net foreign selling, counting today. In spite of it all, we had seen a fair amount of local support for the strong blue chip stocks. I think the locals will slowly accumulate as prices drift lower. After all, one cannot argue that the economy is growing and with it the earnings of these listed companies.
If some of us fear that our market will be gripped by a regional contagion, the likes of which we saw in 1998 or 2008, I think the situation may not be the same. I have always held on to the theory that one should follow the money. So far, there’s a lot of money left in the system, and even if foreign investors pull out, there will be enough local money to take the slack albeit at lower process. When foreign investors start to realize that fact, they will come back with a vengeance because one cannot argue against strong economic growth. By that time, the hungry ghosts will be well fed and far gone and prices will be higher.
I’d like to raise the question then: do you want to buy high or buy low?