Stocks fall on extension of quarantine measures

THE MAIN INDEX ended lower on Tuesday as investors reacted to the extension of quarantine measures in Metro Manila and key areas until the end of October.

The bellwether Philippine Stock Exchange index ( PSEi) trimmed 19.79 points or 0.33% to close at 5,841.60, while the broader all shares index slid 9.88 points or 0.28% to end at 3,521.10.

“The market has been on a downtrend since it failed to break the 6,000 psychological resistance, and it seems that the market will continue this performance amid the lack of a major positive catalyst,” Philstocks Financial, Inc. Research Associate Piper Chaucer E. Tan said in a text message.

The PSEi has not entered the 6,000 level since mid- September, with the last time being on Sept. 15 when it hit 6,018.21. Foreign investors have also been net sellers for 13 straight days due to the lack of an impetus in the local scene.

“I think that the major concern here for investors is that the quarantine measures have not been lifted to a much eased restriction,” Mr. Tan said. “This signalled that the economic recovery will be prolonged versus the initial estimates.”

President Rodrigo R. Duterte decided to maintain the current quarantine protocols in the nation’s capital for another month, which means the number of industries allowed to reopen will remain limited for a longer period.

The number of local coronavirus cases likewise continues to grow by the thousands every day, with 3,073 new cases reported on Monday to bring the total tally to 307,288.

Aside from the extended quarantine, quarter-end window dressing affected the PSEi’s decline on Tuesday, Regina Capital Development Corp. Head of Sales Luis A. Limlingan said.

“Shares closed weaker on low volume once again with investors getting ready for the quarterend window dressing tomorrow ( Wednesday),” Mr. Limlingan said in a mobile message. He noted others also chose to stay on the sidelines while awaiting a new fiscal stimulus in the United States.

Value turnover on Tuesday stood at P5.67 billion, up from the previous day’s P5.08 billion. Some 1.45 billion issues switched hands, against the last session’s 1.14 billion issues.

Sectoral indices were mixed. Financials grew 7.88 points or 0.69% to 1,150.16; mining and oil added 25.30 points or 0.43% to 5,870.49; and industrials climbed 31.23 points or 0.39% to 7,937.85

On the other hand, holding firms lost 58.31 points or 0.95% to 6,027.47; services shed 7.26 points or 0.49% to 1,447.55; and property slipped 11.10 points or 0.41% to 2,697.61 at the end of Tuesday’s session.

Decliners outnumbered advancers, 109 against 88. Some 52 names ended unchanged.

Net foreign selling declined to P551.77 million on Tuesday from P1.81 billion the previous day.

Economists Jared Bernstein, an adviser to Joe Biden, and Janelle Jones, managing director for policy and research at Groundwork Collective, have called on the Fed to target the Black unemployment rate when it makes policy decisions to narrow the unemployment gap with Whites. In February, the peak of the last expansion cycle, the Black jobless rate was more than 2.5 percentage points higher than that of White Americans. Brookings Institution fellow Aaron Klein says the reaction to the pandemic has been off-kilter. “The COVID disease plagues American families, particularly communities of color,” he says. “Our response has been to save markets, particularly high-end, wealthy investors.”

At a Princeton webinar in late May, Powell vehemently denied that the Fed’s policies are widening the income gap between rich and poor; he said they’re aimed at restoring the stellar job markets that existed pre-COVID-19. To do more for the real economy, Mr. Powell and his fellow policy makers came up with the Main Street Lending Program earlier this year. It guarantees payment on 95% of the value of loans made by banks to eligible small and midsize businesses. The Treasury used money appropriated by Congress to provide $75 billion to the Fed to cover potential losses resulting from defaults on the $600 billion program.

For all its ambition, the Main Street program has been slow to get off the ground partly because of the Treasury’s reluctance to make it too generous. It had attracted just eight borrowers as of July 27, according to a report released by the central bank. The largest recipient identified was a casino in Mount Pocono, Pa., that got $50 million, the maximum amount allowed under the program’s priority loan facility.

In another apparent effort to combat charges that its policies favor the rich, the Fed in late August unveiled a longrun monetary policy strategy aimed at achieving a goal of maximum employment that’s “broad-based and inclusive.” It also adopted a more relaxed posture toward inflation, saying it would welcome temporary, moderate price gains above its average 2% target. The result of the subtle yet significant changes in the Fed’s operating framework: Interest rates are likely to stay lower for longer.

The ECB has had more success than the Fed in promoting bank lending to businesses. It’s using a program it launched six years ago when it was grappling with a euro zone that’s far more reliant on such financing than the US. Instead of pushing down short-term market rates and hoping they would flow through to loans, it gave ultracheap long-term funding to banks. The condition was that they use it to provide credit to companies and households, excluding mortgages. That program now stands at about €1.5 trillion, equivalent to over a tenth of the region’s economy.

Annelise Riles, a professor of law and anthropology at Northwestern University, has observed that central bankers, especially in the past year, seem more aware of the need to explain their actions and respond to concerns among the general public. That’s partly because of the latest crisis, she says, but also because of heightened public interest, including through channels such as social media.

She’s spent more than 20 years studying central banks, having been drawn to the subject by the role monetary policy played in calming the Asian financial crisis of the late 1990s. “We have seen a much more fundamental shift in the way that central bankers understand their mission and their role. We have seen new ways of thinking and talking and new values coming in,” says Ms. Riles, author of Financial Citizenship: Experts, Publics & the Politics of Central Banking.

As part of its first strategic review since 2003, the ECB, for example, planned events similar to this year’s Fed Listens, but the pandemic forced Ms. Lagarde to delay the exercise. She’s said she wants to make the central bank think more about popular issues such as climate change.

Nowhere is the dependence on central banks more visible than in financial markets. The biggest central banks, excluding the People’s Bank of China, now own assets worth almost one-quarter of the world’s stock market capitalization — about four times the pre-2008 level.

Those holdings are only going to grow, according to an analysis by JPMorgan Chase & Co. in August, which estimated that since February the central banks of the US, UK, euro zone, and Japan expanded their balance sheets by almost $5.7 trillion. According to JPMorgan, further asset purchases and credit-easing policies should increase these banks’ balance sheets from $21.5 trillion, or 57% of their gross domestic product, to almost $27 trillion, 67% of GDP, by the end of 2021.

Stephen Diggle knows firsthand how paradigm shifts in central banking upend markets and business models. He spent almost a decade running what eventually became one of the biggest hedge funds in Asia, Artradis Fund Management, making $2.7 billion on volatility bets during the financial crisis as markets swooned. By 2010 that strategy was dead: Major central banks had slashed interest rates, adopted quantitative easing (QE), and flooded markets with liquidity, squeezing out volatility in the process.

So Mr. Diggle liquidated Artradis, and in 2011 set up a family office, Vulpes Investment Management Pte, to manage his own wealth and work with other family offices. For a generation, rich people such as Mr. Diggle could invest in US Treasuries and other bonds to generate steady and safe returns, then juice the portfolio with riskier assets such as equities or property. But since the financial crisis, bonds have offered meager income as central banks anchored yields, forcing funds like Mr. Diggle’s toward new corners of the investment landscape.

Vulpes, for instance, invested in New Zealand’s biggest avocado farm, where a successful crop can cover costs and return a dividend for investors, yielding income that bonds these days just can’t replicate. “A lot of the things we have been looking at have been trying to solve this bond problem,” says Mr. Diggle, an Oxford University graduate who worked at Lehman Brothers before co-founding Artradis. “So, for example, we’re farmers now.”

Mr. Diggle’s agrarian turn is just another example of how the continued Japanification of economies and financial markets — a world of low growth and low inflation and, by extension, low rates and low volatility — is affecting investors. “I never would have thought, when I first set up my hedge fund in 2002, that our morning meeting would spend the first 15 minutes of every day talking about what central banks are doing,” he says. “That used to be something that these nerds in the corner of the repo markets spent all their time thinking about.”

The snowballing power of the central banks is a source of great frustration for investors like Mr. Diggle. “At some level the markets don’t make sense anymore,” he says. “You are playing poker against the man who can make his own chips. It’s a very bad idea.”

Economics textbooks tell us the cheap money gushing out of central banks should eventually get people spending again and businesses hiring, pushing up prices and wages and forcing interest rates higher. That would then allow central banks to slow their intervention, halt their stimulus, and maybe even unwind it once the recovery is strong enough. But recent economic history tells a different story.

After more than two decades of purchasing public debt, the Bank of Japan now has a balance sheet larger than the country’s economy, and yet inflation is back around zero. The Fed and ECB haven’t gone that far yet. This suggests that if their economies follow a Japanese trajectory, it could be many years

— even decades — before they’d have to impose limits on their QE programs.

But does anybody expect the power of central banks to return to pre-2008 days? The demands on them are growing and evolving in ways that keep challenging them to do more, not less: Solve the financial crisis, address climate change, avert the pandemic-driven economic collapse, restore inflation, combat income and racial inequalities.

As central banks perform roles that once resided with governments, their independence from politicians comes into question. Coordination during times of crisis is vital, but the worry in the case of those central banks that have historically set monetary policy at arm’s length from government is that it will be tough to wrestle back that independence when (and if) the tide of crises subsides.

A hopeful scenario is that if the impact of the pandemic fades and economies start to grow again, there may be a way for monetary authorities to unwind at least some measures. Central bankers generally insist they could do that — the ECB’s Mr. Lane says the challenges “should not be overstated”— but it could be a long and bumpy process if politicians continue leaning on the banks to dig deeper.

In the process, says Teresa Kong, a portfolio manager at Matthews Asia in San Francisco, the world may be getting hooked. Central bank support, she says, is “like a drug: The more you take, the higher your tolerance and the deeper your addiction. It’s going to take a lot to get us out of this.” —