Philippine Markets Newsletter

MONDAY MACRO: This chart shows what happens when management sentiment is not aligned with investors

June 21, 2021

Over the recent weeks, the stock market has shown signs of a rally. Many are hoping this would be the market recovery that we’ve been waiting for and not just a repeat of the one seen in Q4 2020.

To tell if today’s rally is likely to be different, we take a look at this measure of management sentiment.

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Q4 2020 saw the Philippine All Shares index rise by 24%.

The market recovery was driven mainly by the lifting of certain quarantine restrictions, which gave businesses more room to recover. However, as we’ve seen in March 2021, the government had to reinstate some restrictions.

The news of COVID-19 vaccines then also gave investors more confidence. Many were expecting this meant the end of the pandemic was near. Unfortunately, the vaccination progress continues to be slow and the majority of Filipinos have yet to get their doses.

The bullish sentiment at the time was also driven by the hype of certain stocks. Converge (CNVRG:PHL) had its IPO during the quarter and Dito Telecom (DITO:PHL) started to receive a lot of buzz.

By the start of 2021, the PSEi had slowly declined, from 7,304.79 in January to 6,164.89 near the end of May, a 15% fall.

If an investor were monitoring what management teams were thinking, this decline would not have been surprising. One way to know what management sentiment is, is through share issuances.

To put it simply, share issuances are the opposite of share buybacks. Instead of the company repurchasing shares from its owners, management sells more shares to the public and dilutes the current ownership.

The main reason why management issues more shares is that they are in need of more capital. Either they want to pay off a particular debt or they want to generate funds for an investment project.

Since it dilutes the value of the current ownership—and signals the company has no other capital source to tap—share issuances are not always desirable. As a result, management should only ever want to issue shares when the company’s stock price is at its highest, to get the largest amount of funds per share sold.

In fact, we see such a case play out when looking at the chart below. While investors became more bullish and drove stock prices higher, management teams of Philippine corporations did not necessarily share a similar sentiment.


Share issuances rose to recent highs of more than PHP 40 billion each in Q3 2020 and Q4 2020.

Management teams had been signalling that the business was not recovering as much as investors expected, and it took until Q1 2021 for the market to realize this.

As the current Q2 2021 comes to an end, it seems that the stock market has started another rally. For this to become a real recovery and not just a repeat of Q4 2020, management teams must also believe it to be the case.

About the Philippine Market Daily
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Daily
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