Reversals of (stock market) fortune

Not too long ago, the share price of San Miguel Corp. on the Philippine Stock Exchange was languishing, even if the conglomerate was the country’s biggest firm in terms of assets.

No matter how many new deals its president Ramon Ang sealed, the company could never seem to catch the fancy of fund managers and institutional investors.

Indeed, many stock analysts simply didn’t know how to value the stock, given its expansion into areas that were considered far from its core food and beverage business, and the relationship between the market researchers and the firm was testy, to say the least.

As a result, SMC shares stayed in the cellar, even when all others’ were rising.

On the other end of the spectrum was the telecommunications giant PLDT and its group’s flagship holding firm Metro Pacific Investments Corp. MPIC was, simply put, the darling of the investment community with its regular stock market briefings delivering clear and predictable results, on top of an exciting growth story. One could not go wrong recommending MPIC stocks to one’s clients.

But oh what a difference a few years make. Or a few months, actually.

A cursory glance at the stock market statistics for 2018 shows that the top performing index stock for the Philippine market is—surprise, surprise —San Miguel Corp.

Since the start of the year, the price of SMC shares has risen by 21.3 percent (almost 25 percent last week, actually) making it the best performing stock in the Philippine Stock Exchange index.

That’s due mainly to a plan unveiled recently to clearly delineate the traditional food and beverage business of the conglomerate from its newer lines that include power, petroleum and infrastructure. This plan will make it easier for investors to value the company and, this early, the hidden values are already becoming apparent, thus the price uptrend.

However, on the other end of the spectrum of stock performers (or non-performers) is a rather surprising name. The worst performer on the PSEi since the start of 2018, having fallen over twice as far as the weak stock market index is—again, surprise surprise—MPIC.

Note, of course, that the PSEi is down only 11 percent since the start of the year.

Since the first trading day of the year, MPIC’s share price has declined 24.7 percent, having recovered slightly from last week’s lowest level of 29.6 percent. And, from what we at Biz Buzz understand, that has nothing to do with the firm’s still polished communications strategy vis-avis its investors and everything to do with its fundamentals.

The question on everyone’s mind now is if MPIC, and the rest of the PLDT group, can reclaim their old position as the darlings of the local stock market, after having fallen out of favor? And more importantly, what is the key to changing its fortunes?

Speaking of which …

One person who isn’t worried by the sharp decline in the local stock market is Finance Secretary Carlos Dominguez III.

The head of the Duterte administration’s economic team explained to Biz Buzz recently that the decline in the stock market—despite having wiped out more than $20 billion in wealth since the start of the year—isn’t something that affects the common folk directly.

Dominguez pointed out that the Philippine Stock Exchange index’s gain of 25 percent or 1,712 points in 2017 was mainly driven by just two groups: Ayala Corp. and the SM group, which contributed three-fourths of the market gains last year.

The seven stocks that belong to these two groups—SM Investments, Banco de Oro, SM Prime Holdings, Ayala Corp., Ayala Land, Bank of the Philippine Islands and Globe Telecom—contributed 1,281 points out of the 1,712-point gain.

Dominguez said this indicated that the stock market’s gains were exclusive to only a few players in the economy.

More importantly, he pointed out that the stock market’s turnover revolved around only 10 groups: the Zobels, the Aboitizes, the Sy family, the Gokongweis, Ramon Ang of San Miguel, the PLDT group under Manuel Pangilinan, Enrique Razon Jr., George Ty, Andrew Tan and the Consunjis of DMCI.

Meanwhile, the top eight domestic institutional funds— BDO, BPI, MetroBank, Sunlife, Philam, GSIS, SSS, ATR Asset Management—control as much as 90 percent of the total assets managed by the Fund Managers Association of the Philippines. This group’s members have around P1.1 trillion in assets, which account for 40 percent of daily equity market turnover.

In other words, the retail investment scene is only a little more democratized than the ownership of the country’s largest conglomerates and business groups.

What was Dominguez’ point? The stock market route is painful, but it is by no means the end of the world. The rest of the Philippine economy is humming along fine. Let’s hope he’s correct. Common tower conundrum The Duterte administration is still pursuing a common tower policy, but it appears to have softened its stance with regard to how this will be implemented.

Instead of ramming through potentially controversial rules—which could invite legal conflict—the government wants to consult with industry stakeholders first, said Ramon “RJ” Jacinto, a musician and entrepreneur who advises

President Duterte on economic affairs and ICT.

The concept of a common tower policy makes sense. By allowing multiple telco operators to install equipment in shared sites, it does help lower operating costs while removing the need for redundant infrastructure. Under the current regime, operators PLDT Inc. and Globe Telecom build their respective networks for their exclusive use.

The fact that the government wants the policy in place to support a potential third major telco player as it rolls out its network is laudable.

The common tower policy, as initially envisioned, became problematic for stakeholders and the telco companies, in particular, because it sought to ban PLDT and Globe from putting up new cell sites.

Instead, the future build out of those sites would be done through independent tower companies to be selected by the government.

The fact that the government is nowopen to talking with PLDT and Globe is a positive signal that a common tower policy can be implemented smoothly.

Jacinto told us the draft policy could be ready by June this year.

Sugar? No worries.

The Sugar Regulatory Administration (SRA) is trying to allay worries of its stakeholders with the sudden spike in sugar prices.

While this may sound good news for planters, sugar board member Roland Beltran said a continuous increase in mill gate prices would eventually lead to higher retail prices of sugar, and that’s bad news for consumers.

Sources told Biz Buzz that the rise didn’t seem to be market-driven, but a response from the lower production output forecasts this year.

Last year, the sugar industry recorded a record-high production of 2.5 million metric tons (MT), while this year’s production was likely to reach about 2.3 million MT.

The lower forecast came at a time when the demand for sugar is expected to go high as beverage companies decided to shift to using sugar from high-fructose corn syrup to avoid the sugar-sweetened beverage tax.

Based on the agency’s price monitoring report, prices of domestic sugar have risen by 18.27 percent to P1,694.33 a 50kilo bag from P1,432.56 in the same period last year.

Beltran explained that the robust production last milling year was actually caused by a huge bumper harvest, which enabled the country to log its first ever sugar exports to China.

Industry stakeholders need not worry, the sugar board said, ensuring that there was enough sugar output to fill the country’s needs until the next milling year in 2019. i

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