Profits in Time of Turmoil
A perky stock market – thanks to robust corporate earnings – in a year of living dangerously for the nation
By Delma L. Peyra

Think short-term and focus on corporate earnings and whatever good news that can be wrung from the economic landscape. Ignore the negative. Do not let the mudslinging in the political arena, nor the endless saga of crises and quick, deceptive recoveries, as well as scandals, spook investing decisions. At least not yet – for as long it lasts – up to the time when the full-blown political season, in the run-up to the 2004 national election – officially starts.

By that time, the anxiety of who the real protaganists in next year’s polls would have given way to inevitability, and investors could finally face reality head-on and take a long-term view on their investment decisions. As the year ends, tumultuous, even by Philippine standards – the stance of investors had been to take advantage of whatever profit that can be sponged off from the market.

From a cautious start, as the world endured the double impact of the US invasion of Iraq and SARS – investors, buoyed by healthy first-quarter economic results – pumped up trading volumes in the Philippine Stock Exchange to about P500-P600 million a day towards the end of May, from just P100 to 200 million pesos a day at the start of the year. Gross domestic product grew a healthy 4.5% in the first quarter and the fiscal deficit, a headache of the government got trimmed by 33.5% year-on-year in the first semester— triggering a mini bull run by mid-year in July, with the 30-company composite index (Phisix) breaching the 1,300 point psychological barrier on July 8, up 28% from the start of the year.

Not even the stunt pulled by 300 soldiers three weeks later on July 27 could douse investors’ enthusiasm. The weekend mutiny led by junior military officers, who accused President Arroyo and top military brass of corruption, set off a potentially bloody confrontation at the heart of the country’s financial and business district in Makati. Curiously, the event only pulled down the composite index by two percent at the end of trading day the following Monday. Losses brought about by the aftermath were recovered in the following weeks. Towards the third week of September, the Phisix rose 1,320 points, another peak for the local bourse this year.

On the weekend of 4 October, when President Arroyo officially reversed an announcement she made on 30 December last year, not to run for president for the 2004 polls – the market hardly reacted, shedding only 1.33 points or .01% at the close of Monday’s trading.

Corporate earnings: Mobile madness and strong consumer demand

It’s good that the need for a cellphone (or more cellphones) continue to seduce consumers nonstop – regardless of coup rumors or corruption scandals in the government. This made telecom giants PLDT and Globe Telecom, with a take-up of 13% and 12%, of the bourse’s total market capitalization (Phisix) – the darlings of the stockmarket this year. Philippine Long Distance Telephone Company (PLDT) and Globe Telecom both reported profit growth of more than 40% in the first half of the year.

PLDT, with a market cap of P129 billion (US$2.3 billion), reported even healthier profits for the third quarter, largely driven by its mobile phone subsidiary Smart Communications whose net income from January to September totaled P10.3 billion, a 212% increase year-on-year. The company also said that beginning October, it will collect revenues from its directory assistance service which get at least six million calls a month, at three pesos per call that could improve sales in its fixed line business. Trading just below P300 at the start of the year, PLDT’s stock price rose to P845 around November this year – a 52-week high. Year-to-date transactions by end-November totaled P20.29 billion, 56% more than last year’s total.

Globe Telecom continues to benefit from strong demand in wireless services. Its subscriber base hit the seven million mark at the end of the first quarter, adding more than 600,000 subscribers for that period alone. Investors took notice, driving Globe’s stock price past P600 in April to P840 by end-October – from just below P450 at the beginning of the year. Globe’s third quarter results were even rosier – with net additions of more than 800,000 subscribers, mostly on prepaid subscriptions, its highest quarterly take-up. Net income for the first nine months of the year stood at P8.4 billion, beating its same-period performance last year by 91%. Its total current subscriber base stands at 8.1 million. Faced with no doubt a hands down winner, investors went simply crazy with Globe’s stock. Year-to-date market transactions (end-November), totaled a staggering P40.17 billion, a jump of more than 1,000% from 2002’s P3.6 billion on volume uptake of 58.47 million shares, versus last year year’s 6.3 million shares.

Other companies such as mall developer SM Prime Holdings, bouyed by strong consumer spending, especially food and beverage and by strong pick-up of its retail properties, also saw its stock trade pick up significantly after the second quarter. Its stock traded a 52-week high of P7.50 per share early in November from a low of P4.35 in January this year. Ayala-affiliated companies such as Bank of the Philippine Islands also saw their stock rise this year.

The going gets tougher

But as all roads lead to the 2004 elections in May, the market shows indications of buckling under the slew of negative political developments in the past six weeks. Since October, not a week went by without a major crisis hitting the country. Taken all together, the impeachment of Supreme Court Justice Hilario Davide – which threw the country on the brink of a constitutional crisis, pitting the judiciary against Congress – the peculiarly violent act of a former Air Transporation Chief taking control of the country’s international airport control tower the same week the country was still waiting for a solution to the impeachment issue, and a noisily dispersed rally by supporters of deposed former President Joseph Estrada in Makati – all contributed to what could be the steepest fall in the stockmarket this year over a ten-day trading period. From November 5 to November 10, the composite index fell from the year’s high of 1,425.87 (closing) to 1,328.04 index points, shedding 97.8 points.

While the index picked up a couple of points, it fell again on news that Finance Secretary Isidro Camacho – highly regarded by the business community as a competent economic manager – has tendered his resignation effective 30 November, citing “emotional, physical, and financial exhaustion.” The announcement pulled the peso to an all-time low of P55.58 to the dollar. A similar effect greeted the announcement of Fernando Poe Jr., regarded as the king of Philippine movies and best buddy to ousted former President Joseph Estrada that he will be gunning for the presidency in 2004.

The composite index shed 14 points and the peso hit P55.85 to the dollar – a historic low since January 2001. Ratings agency Moody’s also threatened to downgrade the country’s debt ratings.

Notwithstanding, the slightly better-than-expected third-quarter economic results where gross domestic product clocked 4.4% on targets of 3.8-4.4% — investors will be factoring more and more the political risks involved as the elections come to a close — and may be less more adventurous in placing bets and would look at long-term impact on the likely outcome of the 2004 polls, including worst-case scenarios such as irregularities in the May polls, massive street protests from contending parties, and military intervention though a coup attempt.