No reason to panic
Philippine Daily Inquirer
February 12, 2018 at 5:30 am

Who wouldn’t be drawn to — or even scared — by such headlines as “Global markets collapse” or “Asia joins global stock plunge”?

That happened exactly a week ago when US stocks took a steep plunge, with Wall Street’s main stock price barometer Dow Jones’ industrial average plummeting 1,175 points — the biggest one-day points fall on record that erased all the gains made by Wall Street so far this year.

The local stock market was not spared, posting one of its biggest single-day price drops. The main price indicator, the Philippine Stock Exchange index (PSEi), lost 2.21 percent or 194.75 points to end the day at 8,616.

It was the biggest single-day price decline for the PSE in more than a year after the 2.47-percent slump on Dec. 12, 2016.

Should we be worried? We don’t think so.

As it is, the stock market has seen similar turbulence in the past and recovered quickly soon after, unless of course when it is sensing that the world economy — and the Philippine economy along with it — is going into a recession, which is very unlikely this year.

The stock market’s main role of raising funds for companies through the sale of new shares of stock to the public is no longer as prominent.

Except for a few initial public offerings (IPOs) that actually raise funds for companies going public, the local stock market has just become mainly a secondary market where investors make or lose money by betting on where stock prices are headed.

The main reason we shouldn’t worry is that very few people are involved in the local stock market. Only a handful of families — those named on the Forbes list of richest individuals — control much of what is listed on the bourse.

Many of those listed companies have a public ownership of just 10-20 percent, or just enough to comply with the law.

In effect, the majority of the publicly traded companies remain family-controlled to date. Of the Philippines’ 100 million population, less than 800,000, or 0.8 percent, are into stocks trading.

So any crash in stock prices will affect only a small percentage of Filipinos. The same is true whenever prices shoot up: Only a few gain from it.

Any decline in the prices of stocks of listed companies hardly affect the operations of these firms.

For instance, electricity rates are not dependent on the price of Meralco shares in the market. So are the prices of consumer goods produced by such listed companies as San Miguel Corp. and Universal Robina Corp.

Prices of condominium units and house-and-lot packages do not rise and fall according to the stock prices of developers like Megaworld and Ayala Land.

Another reason for the sharp decline last week, according to many analysts, was that market players were simply taking profits after a major rally since the start of last year.

The PSEi breached the 9,000 mark for the first time last Jan. 26, peaking at 9,058.62 the following day. This represented an increase of 32 percent from just 6,861.31 on Jan. 3, 2017.

This is more than enough to convince many investors to sell — and last week’s global panic was a good excuse to do so.

Ordinary Filipinos like us are better off watching developments in the real economy.

Specifically, we should monitor whether or not prices of basic goods and services have gone up too fast because of the tax reforms that took effect last month, not to mention the rising prices of imported crude oil.

We should also take a look at whether or not enough jobs are being created by the local economy, which continues to post robust growth. We should also be monitoring if investors — both local and foreign — are putting up new businesses or expanding existing operations to meet the demands of a growing economy.

Lastly, we should all be hopeful that the government will indeed fast-track billions of pesos worth of infrastructure projects to generate employment and boost regional economies.

These are the issues we ordinary citizens should be concerned with, not the decline in global and local stocks despite the catchy and scary words used to describe it.

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