News / Inter Market Analysis

2008 Forecast: Short Term Pain For Long Term Gain By Fitz Aclan January 11, 2008

Just like the second book of Charles Dickens, the year 2007 can be characterized as “the tale of two markets,” as it were.

From January to July, the market posted heavy gains with the composite index gaining by as much as 28.08% on a year-to-date basis and at the same time having net foreign buying of almost P70 billion - the highest that the market has ever posted for the first seven months of the year since the Asian financial crisis. 

However, things turned around by the second half of 2007 as concerns over US subprime took center stage. At one point, the market declined by as much as 25% from its highs before bottoming out at 2,898 sometime in August.

Since then the market continued with its volatility as uncertainty loomed regarding the prospects of the US economy. This resulted in massive unloading of emerging market positions of foreign fund managers, which in turn resulted in a generally range bound trading and foreign selling.

From August to December, foreigners sold a total of P22 billion in net positions or a third of the net foreign buying posted January to July. Overall, net foreign buying ended the year at P47 billion which was still higher than the previous year. 

One surprising consideration that must be noted here is that despite the net foreign selling from August to December, the PSEi index still managed to remain buoyant and was in fact higher towards yearend. The reason? Strong domestic buying which was offsetting the foreign selling. This is the first time this has happened since the Asian crisis and to me this is a very positive indication that the equity market is inherently strong. It is indicative of how the market has evolved over the past few years. If we were in normal times, the PSEi index would have been at the 2,500-2,600 level by now given the foreign selling we saw the past few months.

So what now for 2008?