By James A. Loyola

The local stock market started 2018 with a lot of promise, kicking off the year with a record-breaking rally — only to have the bull run derailed by bearish factors from overseas and the domestic front.

While the Philippine Stock Exchange index was within spitting distance of the 9,000 level early this year, it eventually ended at 7,466.02, down 12.76 percent compared to its 2017 close — the benchmark’s biggest drop since it fell 48 percent in 2008.

Value turnover declined 11.85 percent in 2018 to P1.73 trillion from P1.96 trillion last year as foreign investors were net sellers for the year.

Philstocks Financials Head of Research Justino Calaycay Jr. said “2018 proved to be a litmus test of the market’s resiliency. Both technical and fundamental considerations provided a poser to investors.”

“On one hand, the market seemed poised to extend an already extended bull run, appearing to have gathered strength in 2017, posting a 25 percent return against pessimistic prognostications; on the other, fears arising from mixed expectations on the impact of the TRAIN law, shifting US economic and political diplomacy, geo-politics, including Brexit, among others kept sensitivity to the news cycle heightened,” he noted.

Calaycay added that, “on the corporate front, earnings have failed to provide a solid foundation for the bulls alternatively giving bears enough reason to dominate the perception game.”

Among the macro-economic developments, run-away inflation and its impact on interest rates, input costs and earnings margins had the biggest effect on listed companies and their stock prices.

While there were various inflationary factors, grabbing the most intention is the spike in oil prices compounded by a weakening peso (lowest against the US dollar in 12 years) and higher tax on fuel due to the first phase of the Duterte administration’s tax reform package.

“Consumer spending took a hit – obviously as inflation soared and eroded purchasing power,” said Calaycay noting that this adversely affected listed companies that operated in an economy that is heavily dependent on personal expenditures.

He explained out that, “even as topline continued to expand by double-digits (at least among the 30 component counters of the PSEi), the twin ill-effects of rising input costs (supply side pressures) and the erosion of purchasing power, manifested in narrower margins and thus, thinner year-on-year improvements in bottom-lines to single-digits.”

Concerns over corporate earnings and the impact of high inflation on the general economy pushed market investors to sell down stocks, forcing the PSEi into the dreaded bear market territory (which is defined as a drop of 20 percent) for the first time in 10 years.

The negative market sentiment dampened the interest of both issuers and investors for new listings, particularly in the second half of the year, prompting canned fruit manufacturer Del Monte Philippines, Inc. and tech manufacturer Cal-Comp Technology (Philippines), Inc. to shelve their planned initial public offerings.

Among those brave enough to pursue their stock offerings were construction firm DM Wenceslao & Associates with its IPO as well as San Miguel Food and Beverage Inc., Global Ferronickel Holdings, Inc. and Double Dragon Properties Corporation.

However, these firms had to downscale their offering sizes (lower offering price, less shares offered or both) due to weaker investor appetite.

Saving the day, as far as stock offerings were concerned were the stock rights offerings of four banks – Metropolitan Bank and Trust Co. (Metrobank), the Bank of the Philippine Islands (BPI), Rizal Commercial Banking Corp. (RCBC) and Union Bank of the Philippines, Inc. (UnionBank) — which raised a total of P135 billion out of the P188-billion new listings at the PSE.

Injecting some excitement into the PSE’s day-to-day trading activities is the build-up to the government’s bidding out of the third telecommunications firm franchise which resulted in some the rapid rise, and fall, of some stocks that were planning to join the bid or were suspected to be used as backdoor listing vehicles for prospective bidders.

While the only listed bidder was Now Telecom (PT&T is listed but suspended), benefitting from third telco backdoor listing rumors were Vulcan Mining for Converge ICT, Starmalls and Golden Bria for the Villar group, and various listed companies associated with Davao’s Dennis Uy.

Dennis Uy’s Mislatel consortium, backed by China Telecoms, was eventually declared the winning bidder by the country’s biggest corporate shopper for 2017-2018 has yet to identify his vehicle for the listing of his latest venture.

So far, Uy has listed his transport business through the IPO of Chelsea Logistics as well as his first listed company Phoenix Petroleum, an oil importer and distributor.

Uy is also seen to complete the backdoor listing of his hotel-casino business PH Resorts Group Holdings, Inc. through Philippine H2O Ventures Corporation as well as his holding firm Udenna Corporation through ISM Communications Corporation.

This year has seen the market reach its latest peak only to fall to a 10-year low but, as always, the heightened volatility spelled financial success for the market savvy or for those who were simply lucky, but also resulted in lost fortunes for those who had poor timing.

Next year, 2019, looks to be another exciting year for the stock market as it will be an election year although economic challenges remain.