Will it be another bad week?

ARE WE going to have another bad week? Last week, trading was simply bad. The benchmark Philippine Stock Exchange index or PSEi fell lower by 148.16 points or 2.76 percent on a weekly basis when it closed last Friday at 5,214.52. More than that, the market was down in four out of five trading days. New leads that came up within the week just did not produce the positive impact that will lift up the market.

For instance, contrary to what Malacañang might have expected, the new mining guidelines (Executive Order No. 79 or EO79), which was hurriedly issued early Monday morning or well ahead of the opening bell of the market, only received a cold response. The mining sector index fell on the same day by 716.35 points or 2.82 percent as it closed at 24, 278.31. The overall market also lost 98.94 points or 1.85 percent as it closed at the session’s low of 5,263.74.

Technically driven like the market as a whole, the mining sector jumped back to positive territory on Tuesday. By Wednesday, the market fell again by 645.62 points or 2.61 percent as the impact of EO79 became clearer, specially with regards to the issuance of new tenement contracts along with questions pertaining to the full implementation of the new mining guidelines. EO79 could not “trigger” immediate investment inflows into the mining sector. New tenement contracts will be issued only after Congress will have passed into law the new revenuesharing scheme of EO79. And “only heaven knowswhen,” says one market observer.

This cynical view on the legislation process may have some basis. Following previous records, it has been observed that it may take Congress as long as three years to pass a law. And even if it will be certified as an urgent bill, there is fear that it may still face some delay because the new mining guidelines are potentially politically contentious in the local elections in May next year. P-Noy may be forced to hold back or worse compromise some of the provisions of EO79. Remember, he needs broad support to galvanize his influence and control of government. To do this, he must ensure the victory of his coalition party in the coming local elections.

Things are even made more complicated. Local ordinances that run counter to the provisions of EO79 will not be automatically overturned. They will be properly disposed of by the courts through regular judicial pro- ceedings. More imagined than it may be an actual problem, this further weakened the mining index on Thursday by another 79.66 points or 0.33 percent. This was how bad the market was until last Friday when things pleasantly changed. The mining index performed better and closed higher by 34.36 points or 0.14 percent. It was the first time, too, that the overall market index closed on positive territory.

Growth targets

It must be due to the new growth rate targets released by the administration for the remainder of P-Noy’s term that somehow gave the overall market as well as the mining sector some lift last Friday. The government projected a gross domestic product (GDP) growth of 5 to 6 percent for 2012, 6 to 7 percent for 2013, 6.5 to 7 percent for 2014, 7 to 8 percent for 2015 and 7.5 to 8.5 percent for 2016. With these numbers, the country could still catch up and possibly surpass the 7.6-percent growth rate established in 2010 as the Philippines recovered from the global economic crises. So far, this is the highest growth rate the PNoy administration has yet to be beat.

Local economists and market analysts, however, doubt these forecasts of government. They are considered too bullish given the continuing uncertainties in the local and global scene. It is felt that a “6 percent or even slightly higher” growth target in the next five years is more realistic. News reports from international agencies also find the estimates of the government to be over optimistic. To cite the report of Moody’s Analytics, a subsidiary of Moody’s Corp., Philippine “GDP growth is expected to hit 4.7 percent this year and 5.1 percent in 2013 and 2014.” Other international research agencies also go as far as to say that the government’s GDP estimates for 2015 and 2016 are overstated.

To support their allegations, they cite the trouble caused by delays in the full implementation of the privatepublic sector partnership infrastructure projects of government. This alone has caused the government to miss a substantial percentage of its investment targets in 2011. To com- pound the situation, the country continues to be affected by the ongoing credit problem in Europe, the slowing down in the US economy along with the felt deceleration of growth in China. Any further deterioration from their current status could as well seriously undermine the country’s growth programs.

Bottom line spin

So far, there seems to be no other developments that could change the character and direction of trading activity in the market. What accomplishments P-Noy may mention in the Sona seemed to have been reported earlier in the news. We have read about the credit-rating upgrade given to the country by at least three international organizations. We have also read about the possibility that the Philippines may achieve rice production sufficiency in 2013. Also, the present administration seems to be making significant advances to deter corruption. The country is into a new educational system that will produce better trained and academically prepared students. Finally, the government has made good progress in pursuing peace agreements and in fostering better regional and international relations.

But what P-Noy might reveal to justify the government’s growth targets could be interesting and significant. They can determine the new pace and direction of the market in the weeks to come. For example, it is very important to know what measures have been taken by the government to exactly promote a favorable environment for investments. It is equally important to know how much government spending has been used to build the momentum for economic development. It is further important to know, too, what support has the government given to expand the business process outsourcing (BPO) sector, knowing that it is this part of the economy that could offset or augment overseas workers’ remittances that have driven up the economy for the longest time.

New inputs on these subjects could possibly help bring about more active market participation and price volatility. They can, as well, determine the character of the market. And since the Sona is just a week away, trading this week may not be going to be that bad after all.

(The writer is a licensed stockbroker of Eagle Equities, Inc.. You may reach the Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)