Philippine stock market
performance as measured by the Philippine Stock Exchange Index (PSEi) has been
considered as one of the most turbulent among the emerging markets. The term
emerging market was coined by economists at the International Finance
Corporation when they were promoting the maiden mutual fund investments in
developing countries. An emerging market has the features but not the standards
of a developed market so it can be upgraded to a developed market or downgraded
to a frontier market at the discretion of the global index providers. The year that
was had shown us that buy-and-hold strategy does not work in emerging markets unless
we know the balance between the desire for the lowest possible risk and the
highest possible return. Low levels of risk are associated with low potential
returns while high levels of risk are associated with high potential returns. But
high potential losses must be reckoned because there are no guarantees. We must
not measure investment returns based on passive investment strategy where an
investor buys and holds stocks even with observable market threats. But we must
measure investment returns based on active investment strategy where an
investor buys and sells stocks anchored on favorable market sentiment. Although
the MSCI Emerging Markets Index opened at 794.14 points on 31 December 2015 and
closed at 862.27 points on 30 December 2016 or an investment return of +8.58%, the
PSEi opened at 6952.08 points on 29 December 2015 and closed at 6840.64 points
on 29 December 2016 or an investment return of -1.60%. MSCI Emerging Markets
Index is an index created by Morgan Stanley Capital International (MSCI)
designed to measure stock market performance in emerging markets. Beyond
reasonable doubt it was a bad year for passive investors but a good year for active
investors. From the year low of 6084.28 points on 21 January 2016 to the year high
of 8102.30 points on 21 July 2016, the PSEi made an investment return of +33.17%.
But from the peak of 8102.30 points on 21 July 2016 to the trough of 6563.67
points on 23 December 2016, the PSEi made an investment return of -18.99%. PSEi
had shown us that we must engage rather than evade market turbulence. But do not
enter into uncharted territories unless the potential reward outweighs the
potential risk. Before you jump on the bandwagon ponder that past performance
does not guarantee future results.
