EL 5  Technical Analysis: stock trading; when to buy

ELEMENTS OF SECURITY ANALYSIS

SECURITY ANALYSIS
 Security
SECURITY ANALYSIS
 Price
 It is an invaluable roadmap that guide investors
 Time
how to manage the unpredictability of the
 Person
securities market
QUANTITATIVE AND QUALITATIVE FACTORS IN
 Stock prices go up and down, interest rates and
ANALYSIS
inflation rates move depending on economic,
Quantitative Factors
environmental, and other variables.
 Market capitalization
 Security Analysis deals with finding the adequate
 Earnings and dividends, and other financial ratios
intrinsic value of individual securities such as
 Assets and liabilities
stocks, bonds, etc. In relation to their market
 Operating statistics
value for the purpose of decision making.
Qualitative Factors
 The analysis can help an investor determine the
 Nature of the business and its future prospects
qualities of an investment as well as the returns
 The character of the management
and risks (both nominal and relative)
 Its physical, geographical, and operating
HOW YO PICK STOCKS FOR BEGINNERSERS
characteristics
SET INVESTMENT POLICY
 The relative position of the individual company in
 Financial goals
the industry
 Investment Profile
 The trend of the future earnings and future outlook
 Investment Amount
for the business unit, industry and business in
 Asset Selection
general
CONDUCT SECURITY ANALYSIS
CLASSIFICATION OF FINANCIAL SECURITIES
 Fundamental Analysis
EQUITY SECURITY
 Technical Analysis
 Claim with ownership rights and responsibilities
PORTFOLIO CONSTRUCTION
 Stocks are issued to finance the business
 Asset Allocation
 Investors have ownership interest in the firm
 Extent of Divesification
 Investors receive potential dividends, capital
PORTFOLIO EVALUATION
gain or appreciation
 Risk vs. Return
 Generally high risk, high return
 Expectation vs. Actual
 No maturity date
PORTFOLIO REVISION
 Issued by corporations
 Changing Mix of Securities
 Common shareholders have the right to vote
INVESTMENT PROCESS
 An all equity firm can not go bankrupt
1. INVESTMENT GOALS
 In the event of liquidation, investors receive
 Own a house
assets after creditors/ bondholders
 Own a car
 Example: Preferred Stock and Common Stock
 Education
DEBT SECURITIES
 Travel
 Contractual Obligations of Debtor (borrower) to
 Retirement
Creditor (lender)
 Open a business
 Bonds are issued to finance the business
2. SECURITY ANALYSIS
 Investors have no ownership interest in the
 Fundamental Analysis: stock investing; what to
firm
buy
  Investors receive interest income and us
guaranteed
 Generally low risk, low return
 With maturity date
 Maybe issued by the government
corporations and other financial institutions
 Bondholders have no right to vote
 Excessive debts can lead to bankruptcy and
financial distress
 In the event of liquidation, investors receive
assets before shareholders.
 Example: bonds, treasury bills, commercial
papers, and debentures
DERIVATIVES
 Securities whose value is derived from an
underlying asset
Derivatives are used to achieve management objectives:
 Risk Management
 Borrowing Cost Reduction
 Hedging to reduce risks in the management
of day-to-day cash flow
 Speculation - to take a position of a profit
 Example: Forwards and Futures, Letter of Credit,
Options, Swaps, and Warrants
ANALYTICAL TOOLS AND TECHNIQUES
How to perform/ conduct Fundamental Analysis:
A. ECONOMIC ANALYSIS
 When there is recession, stock prices decline;
when the economy is growing, stock prices rise.
The performance of the company depends on the
performance of the economy and is affected by
the macroeconomic factors (GDP/ Interest rate/
Inflation rate/ Balance of Trade/ Credit Rating)
 is essential to understand the behavior of stocks.
The performance of the company depends on the
performance of the economy. When there is
recession, stock prices fall. When the economy is
high, stock prices are high.
B. INDUSTRY ANALYSIS
 The performance of companies depend greatly
on the condition of the industry and sectors
(agriculture/ Industrial/ Service) to which they
belong.
 Is an evaluation of the relative strengths and
weaknesses of particular industries. The
performance of companies depend greatly on the
state of industry to which they belong.
or C. COMPANY ANALYSIS
 It is primarily based on the internal and external
information about the company (Fundamental
Analysis vs. Technical Analysis)
FACTORS TO CONSIDER WHEN ANALYZING
SECURITIES
FUNDAMENTAL ANALYSIS
 Also known as “company analysis” or “value
investing” used to measure a company’s
intrinsic value by analyzing its financial
performance, management skills, marketing
strategies, operational efficiency, and macro
trends.
 Fundamental analysis is the examination of
publicly available information and the formulation
of forecasts to estimate the intrinsic value of
assets.
 Fundamental analysis involves the estimation of
an asset’s value using company data, such as
earnings and sales forecasts, and risk estimates
as well as industry and economic data, such as
economic growth, inflation, and interest rates.
Buy and sell decisions depend on whether the
current market price is less than or greater than
the estimated intrinsic value.
TECHNICAL ANALYSIS
 Study of stock prices, charts, and trends to
predict stock performance and future price
movements. It does not measure a security’s
intrinsic value.
 Investors using technical analysis attempt to
profit by looking at patterns of prices and trading
volume. Although some price patterns persist,
exploiting these patterns may be too costly and,
hence, would not produce abnormal returns.
MACROECONOMIC ANALYSIS
 Among the economic variables that usually affect
an industry’s revenues profits are the following:
Gross domestic product or the measure of the
value of gods and services produced by an
 economy, either in current or constant currency  Financial intermediation
(inflation-adjusted) terms.  Real estate
 Interest rates, which represent the cost of debt to  Business process outsourcing
consumers and businesses and are important FUNDAMENTAL ANALYSIS
ingredients in financial institutions’ revenues and  Is one of the most effective and preferred ways to
costs evaluate investments. It studies the basic facts
 The availability of credit, which affects business affecting a stock’s value. Fundamental analysts
and consumer spending and financial solvency. carefully and thoroughly study a company’s
 Inflation, which reflects the changes in prices of strengths and weaknesses in the areas of
goods and services and influences costs, Interest management, marketing, operations and finances.
rates, and consumer and business confidence. The goal of this analytical approach is to
INDUSTRY ANALYSIS  Assess the intrinsic worth of a company, its
 Assessment of current business environment basic elements and core business
including the development of sectors (agriculture,  Compare the intrinsic value with current
industrial, and service) and industry purpose of market price to make a decision.
gaining competitive advantage, research and  Monitor the past and current performance
development and condition of the company, particularly on
 Industry analysis is useful in a number of how it generated revenue from the sales of
investment applications that make use of its good and services, manage costs and
fundamental analysis. equities.
 Understanding a company’s business and INTRINSIC VALUE
business environment  Is also known as fundamental value. It refers to
 Identifying active equity investment the actual value of a company or stock without
opportunities reference to its market value. It is calculated by
 Investing Portfolio performance attribution. summing the future return generated by the asset,
3 MAJOR ECONOMIC SECTORS and discounting it to the present value.
AGRICULTURE  Investors buy stocks that they believe will
 Contributed less than 20% of the Philippine generate profit in the future that exceeds the
Economic Output price they paid for. They prefer to buy
 Farming undervalued stocks or those stocks whose price
 Fishery is below what they think the company is actually
 Livestock worth.
 Forestry  Warren Buffet, one of the world’s richest men
INDUSTRIAL and is considered the most successful investor of
 Contributed more than 30% of the Philippine his time, is known to be a fundamentalist or value
Economic Output investor, Investors like him put in the time to
 Construction understand a company’s business, accurately
 Manufacturing forecast its future, and pay the right price, and
 Electricity, Gas, Water achieve their financial goals.
 Mining and Quarrying HOW TO PICK THE RIGHT STOCK
SERVICE  Strong earnings growth
 Contributed more than 50% of the Philippine  Cheap valuations
Economic Output  Assess the intrinsic value of a company, its
 Transportation and communication core business
  Compare the intrinsic value with current basid information about the company, like the
market price to make a decision mission statement, the goals and values, and
 Monitor the past and current performance company’s history, focusing on events which
and condition of the company have contributed in shaping the company.
ANALYTICAL FRAMEWORK OF COMPANY SOURCES OF INFORMATION
ANALYSIS  Annual Reports
01 MANAGEMENT  Brochures
 Company Profile  Newspaper Articles
 Vision and Mission  Company Briefing
 Goals and Objectives  Interviews
 Board of Directors  Conference Calls
 Culture  Websites
02 MARKETING HOW TO ANALYZE STOCKS
 Business Model RATIO ANALYSIS
 Marketing Strategies  Involves methods of calculating and interpreting
 Market Share financial ratios to analyze and interpret a firm’s
 Competitive Advantage performance
 Demand/ Supply FINANCIAL RATIOS
 Value Chain and Supply Chain  Involve the use of numerical values taken from
03 OPERATION both income statement and balance sheet.
 Resources PORTFOLIO CONSTRUCTION
 Technology and Capabilities PORTFOLIO
 Processes  Overall collection of assets owned by an
 Logistics individual (stocks, bonds, cash property, etc.)
04 FINANCE PORTFOLIO CONSTRUCTION
 Financial Statement Analysis:  Is all about investing in a range of funds that work
 Income Statement together to create an investment solution for
 Balance Sheet investors.
 Cash Flow DIVERSIFICATION
 Retained Earnings  Investing in a number of different investments to
FINANCIAL RATIOS reduce the overall risk of investments.
 Liquidity ratios INVESTMENT MIX
 Solvency ratios  It refers to how investable funds are allocated
 Profitability ratios between different investment items.
 Stability ratios PORTFOLIO EVALUATION
 Market ratios  Is the process of comparing the return earned on a
HORIZONTAL ANALYSIS portfolio with the return earned on one or more
VERTICAL ANAYSIS other portfolio or on a benchmark portfolio.
 The goal is to maximize return and minimize risk.
COMPANY ANALYSIS RISK AND RETURN ANALYSIS
 Is a process carried out by investors to evaluate  The ability to achieve higher return is dependent
securities, collecting information related to the upon his/her ability to judge risk and his ability to
company’s profile, products and services as well take specific risk.
as profitability. A company analysis incorporates POTFOLIO REVISION
 The art of changing the mix of securities in a
portfolio
 Adding more assets or invest more in an
existing portfolio
 Changing the ratio of funds invested
 Sale and purchase of assets in an existing
portfolio over a certain period of time to
maximize returns and minimize risk
 Change in investment Goal
TECHNICAL ANALYSIS OF STOCK
valuation and media reports, only to end up losing
money.
 The reality is, just because a stock might appear to
be cheap doesn’t mean it will rise anytime soon.
Ans just because a company’s historical
fundamentals look strong doesn’t mean its business
can’t deteriorate and put the company in jeopardy.
On the flip side, no matter how good you might be
performing fundamental analysis, your assumptions
might be off, leading to poor investment decisions.

TECHNICAL ANALYSIS These are some of the reasons why some investors

 Is a forecasting technique that studies how stock consider adding a dose of technical analysis to their

prices behave. It assesses past or historical stock technique.

prices and trading volume so as to predict the  Technical analysts believe all information about a

future stock price behavior. stock that’s worth knowing is reflected in its stock

 Technical analysis believe that past pattern of price. Taking the time to study a company’s

market action will recur in the future and past fundamentals is a waste of time; a pure technical

patterns can be used to forecast future prices. analyst would agree, because everyone else has

 Technical analysts are often called chartists access to the same information and has either

because they spend their time poring over stock bought or sold the stock already.

price charts. This charts show where a stock  Fundamental analysts, on the other hand, claim

price has been over time and how many technical analysts fall victim to group think and

investors have bought or sold the stock. fixate over changes in stock prices that tell

Technical analysts believe historical patterns in a investors nothing about the future. What’s more,

stock price’s movement can give solid clues fundamental analysts claim stock prices can get

about where the stock might be headed in the overvalued when investors become too optimistic

future. about a stock and push its price above or below the

TRADING VS INVESTING company’s intrinsic value.

OBJECTIVES DOW THEORY

Generate short-term Build wealth over a period  According to Charles H. Dow, the market is

revenuw by buying and of time considered as having three movements, all going at

selling securities the same time.

1. Daily fluctuations (Ripples). The first is the minor,
PHILOSOPHY
narrow movement form day to day
Price of a security will Companies with strong
2. Secondary Movements (Waves) the second is the
move in a particular fundamentals will perform
correction, short swing, running from two weeks to
direction to achieve a well in the long run
a month or more;
target price
3. Primary trends/ Major Movements (Tides) The third
is the main movement covering at least four years
 Technical analysts and fundamental analysts are
in its duration.
diametrically opposed to one other
 These price movements can be identified using a
 One of the drawbacks of fundamental analysis is
LINE CHART
that many beginning investors get frustrated after
studying a stock’s financial statements, the analysts’
ELLIOT WAVE THEORY
 According to Ralph Elliot, market moves quite
orderly and follows a repetitive pattern called
waves. There are five distinctive waves under the
Wave Theory: 3 waves are in the direction of the
movement called Impulse waves, and two against
the direction of the movement called corrective or
impulse waves.
TREND
 Trend is the direction of price movement. There are
three directions:
1. Rising Trendline, when it is recommended to buy
shares.
2. Flat Trendline, when investor should stay away
from the market.
3. Falling Trendline, when sale is indicated.
 Share price can increase, decrease or remain flat.
Change in the direction of trend is known as Trend
Reversal. Trend Analysis is used by traders to sport
trend reversal at an early age to trade profitably.
SUPPORT AND RESISTANCE LEVEL
 Support and Resistance defines natural boundaries
for rising and falling or prices.
 When price moves out of the trading range,
braching support or resistance, the result is a
breakout.
BREADTH OF THE MARKET
 This is used to study the advance and decline of
the market.
 Advance means the number of shares whose price
have increased from the previous day’s trading.
 Decline means the number of shares whose price
have fallen from the previous day’s trading
 Breadth of the market is the net difference
between advance and decline during the same
period.
TYPE OF TECHNICAL CHARTS
LINE CHART
 It represents only the closing prices over a set
period of time
 The line is formed by connecting the closing prices
over the time frame
 Does not provide a visual information of the trading
range for the individual points such as the high, low,
and opening prices.
 The closing price is considered as the most
important in stock data that is why it the only value
used in line charts.
BAR CHART
 The chart is made up of a service of vertical lines
that represent each data point
 The close and open are represented on the vertical
line by a horizontal dash
 The vertical line represents the high and low for the
trading period, along with the closing price
 The close and open are represented on the vertical
line by a horizontal dash
 The opening price on a bar chart is illustrated by
the dash that is located on the left side of the
vertical bar
 Conversely, the closing price is represented by the
dash on the right
CANDLESTICK CHART
 This chart relies heavily in the use of colors to
reflect what has happened during the trading period
 When the price of the stock is up and close above
the opening trade, the candlestick will usually be
white or clear.
 If the stock has traded down for the period, then the
candlestick will usually be red or black, depending
on the site.
 If the stock price has closed above the day’s close
but below the day’s open, the candlestick will be
black or filled with the color that is used to indicate
an up day.
HEAD AND SHOULDER
 Head and Shoulder pattern is a very reliable pattern
and that is reason of its popularity. It is reversal
pattern and is formed after an uptrend
1. Left Shoulder: In continuation of the uptrend the
price goes up to forms a new high or first peak
known as left shoulder and then make a low
2. Head: Continuing the left shoulder low, again the
price goes up to a new high, higher that the left
shoulder forming a middle peak called as head of
the pattern and come down.
3. Right Shoulder: It is formed when the price goes
up again from the low of the head but not as high
 as the Head and comes down forming third peak or
right shoulder
4. Neckline: It is the line drawn through the bottom of
the Left Shoulder. Head and the Right Shoulder
and serves as an important support for this pattern.
CUP AND HANDLE
 The Cup and Handle Pattern got its name as it
resembles the shape of a teacup. Components of
Cup and Handle Pattern. It consist of two parts
1. A Cup: A cup formation happens when the price
moving in a uptrend shows a pull back followed by
a consolidation period which makes the bottom of
the cup and finally the reverse back to upside
continuing the uptrend. Usually in cup formation it
makes equal highs at the corner of the cup with the
intermediate price ranges such that it will take a
Bottom of a cup which serves as support for the
pattern.
2. The Handle: After the formation of right highs of a
round cup, there is a pull back before continuation
of the trend which forms the handle of this pattern.
It is formed in the right hand side of the cup. The
duration for the formation of a handle is usually
from 1 week to several weeks. The handle should
be considered reliable only when it is formed in the
top hald of the cup formed as shown in the figure.
CHANNEL CHART
 Channel Chart pattern is a type of technical
analysis in which the price movement is contained
between the two parallel trend line and it is very
easy to notice this pattern in real charts.Channels
basically works on support and resistance. It
consist of following parts:
1. Upper Trendline: It serves as a resistance in the
pattern. It is a straight line and atleast have 2 points, the
more the better. When the price touches the upper
trendline, it can be used as a selling signal.
2. Lower Trendline: It is also a straight line and have at
least 2 points, the more the better. It serves as a support
in the pattern. When the price touches the lower
trendline, it can be used as a buying signal.
FLAG AND PENNANT
 As the name suggest a flag is a rectangular in
shape while a pennant is triangular in shape. Flag/
Pennant gives the buyer very good opportunity to
enter the trending market as the represent very
short pauses in trends.
1. Flag pole: It is the distance between the first
support level to the high of the flag/pennant in case
of bullish flag/pennant. For bearish flag/pennant it is
the distance between the first resistance to the low
of flag/pennant
2. Body: In case of flag the body is a small
rectangular pattern that slopes against the trend.
The rectangle is formed by two parallel trend lines.
TRIANGLE
 Triangle patterns are another very common chart
patterns and owing to its easily interpretable shape,
they are very easy to spot. Depending on of how
the pattern is formed and where the pattern is
formed, its reliability and possible breakout can be
ascertained. The longer the pattern the better is
reliability of its breakout. From bulls and bear tussle
perspective, this pattern shows that neither party is
giving up and the stock price squeezes to a very
narrow range. High volatility and market indecision
normally leads to formation of triangle pattern.
1. Ascending Triangle in this case the upper price is
constant (at a good resistance) and lower price
keeps on moving towards upper price.
2. Descending Triangle in this case of this case of
descending triangle, the lower price of stock is
constants (near strong support) and upper price is
making lower lows.
3. Symmetric Triangle in this case both upper price
and lower price are converging towards each other.
DOUBLE TOP
 Double top is a trend reversal chart pattern formed
after good bullish price move (a continuous price
move for a good duration) where the upward price
movement looses its steam (first top) and it retracts
a bit (to neck line or mid point) Then again it moves
in direction of original trend and reaches the first
top level there by forming second top. It again
cannot move above first top and start moving to
 neckline. Once the neck line is broken its fall in
price is steep.
DOUBLE BOTTOM
 Double bottom is a bullish trend reversal chart
pattern formed after good bearish price move (a
continuous price down for a good duration) where
the downward price movement looses its steam
(first bottom) and it retraces a bit (to neck line or
mid point) Then again it moves in direction of
original trend and reached the first bottom level
there by forming second bottom. It again cannot
move down first bottom and start moving to
neckline. Once the neck line is broken uptrend is
seen.
MACROECONOMIC ANALYSIS
MACROECONOMIC FACTORS
a) GDP Growth Rate
b) Inflation Rate
c) Interest Rate
d) Unemployment Rate
e) Balance of Trade
f) Credit Raring
GROSS DOMESTIC PRODUCT (GDP)
 GDP is the total monetary or market value of all
the finished goods and services produced
within a country’s border in a specific time period.
 Consumption
 Investment
 Government
 Next exports
THE EXPENDITURE APPROACH
 The expenditure approach, also known as the
spending approach, calculates spending by the
different groups that participate in the economy.
The U.S. GDP is primarily measured based on
the expenditure approach. This approach can be
calculated using the following formula:
 GDP = C + I + G +NX
 C = Consumption
 G = Government spending
 I = Investment
 NX = Net exports
 All these activities contribute to the GDP of a
country
PHILIPPINE ECONOMIC GROWTH THROUGH THR
YEARS
 This infographic shows the Philippines economic
annual growth under various presidents dating
back to 1947. The country’s economy sustained
at least 6% growth from 2012 during the
administration of Benigno S.C. Aquino III until his
term ended in 2016 and continued until the early
years of President Rodrigo R. Duterte’s term.
This was the longest growth streak since after
Second World War until it was cut in 2020 due to
the global coronavirus pandemic.
INFLATION RATE
 Inflation is an increase in the level of prices of the
goods and services that households buy.
 Inflation rate is the general increase in prices. It
means an increase in the cost of living as the
price of goods and services rise, and thus decline
in the purchasing power of money.
 “Inflation means that your money won’t buy as
much today as you could yesterday.”
 If the prices of goods rise, the same amount of
money purchase a smaller quantity of goods.
INTERNAL CAUSES OF INFLATION
 Large surge in property prices
 Higher wages / labour costs
 Boom in credit / money supply
 Rise in business taxes e.g. VAT
EXTERNAL CAUSES OF INFLATION
 Increase in world oil / gas prices
 Inflation in global commodity prices
 Depreciation of the exchange rate
 Higher inflation in other countries
TYPES OF INFLATION
COST-PUSH INFLATION
 When a rise in prices is caused by a rise in the
cost of production, such as higher oil prices, and
the producers pass the increase on to consumers
DEMAND-PULL INFLATION
 When a rise in prices is caused by rising
aggregate demand and firms pushing up prices
due to shortage of goods. When demand for
good exceeds production capacity.
INFLATION EFFECT
 A higher inflation is generally negative for stocks
because it causes higher market interest rates and
more uncertainty about future prices and costs, and
it harms firms that cannot pass through cost
increases. Although these adverse effects are true
for most industries, there are some industries that
benefit from inflation. Natural resource industries
benefit if their production costs do not rise with
inflation, because their output will likely sell at
higher prices. Industries with high operating
leverage benefit because many of their costs are
fixed nominal (current dollar) terms, whereas
revenues increase with inflation. Industries with
high financial leverage may also gain, because their
debts are repaid in cheaper dollars.
 Investors who anticipate an increase in the rate of
inflation would expect to increase their required
rates of return by the same amount to derive
constant real rates of return.
INFLATION RATE
 Financial institutions, including banks, are
adversely affected by higher rates because they
find it difficult to pass on these higher rates to
customers. High interest rates clearly harm the
housing and construction industry, but they might
benefit retirees whose income is dependent on
interest income
 Financial crisis 2007-08 also called subprime
mortgage crisis, severe contraction of liquidity in
global financial markets that originated in the United
States as a result of the collapse of the U.S.
housing market. It threatened to destroy the
international financial system; caused the failure (or
near-failure) of several major investment and
commercial banks, mortgage lenders, insurance
companies, and savings and loans associations;
and precipitated the Great Recession (2007-09) the
worst economic downturn since the Great
Depression (1929-1939)
INTEREST RATE
 An interest rate tells you how high the cost of
borrowing is, or high the rewards are for saving. So,
if you’re a borrower, the interest rate is the amount
you are charged for borrowing money, shown as a
percentage of the total amount of the loan.
 Interest rates vary according to:
 The government’s directives to the central
bank to accomplish the government’s goals
 The currency of the principal sum lent or
borrowed
 The term to maturity of the investment
 The perceived default probability of the
borrower
 Supply and demand in the market
 The amount of collateral
 Special features like call provisions
 Reserve requirements
 Compensating balance
 As well as other factors
 Interest = Principal x Rate x Time
 Suppose an economy is overheating and constantly
rising from 2% to 7%. Then, naturally, it will raise
the interest rate in the economy, and thus will try
to bring down inflation in the economy.
 Similarly, suppose the inflation is falling in the
economy from5% to 2%, and the government feels
a significant need to boost the economy. In that
case, they may reduce the interest rates to
borrow at a reduced rate and thus grow. Again, it
provides a stimulus for economic expansion.
Inflation is rising from 2% Interest Rate in Economy
to 7% will be raised
Inflation is falling from 5% Interest Rate in Economy
to 2% will be reduced
UNEMPLOYMENT RATE
 Unemployment rate is defined as the percentage of
unemployed workers in the total labor force. It is
widely recognized as a key indicator of the
performance of a country’s labor market.
Unemployment rate doesn’t just impact those
individuals who are jobless-the level and
persistence of the factors of unemployment have
wide-ranging impacts across the broader economy.
 People with jobs are employed
  People who are jobless, looking for jobs,
and available for work are unemployed
 People who are neither employed nor
unemployed are not in the labor force
 The sum of employed and unemployed
people makes up the labor force. The
remainder consists of people who have no
jobs and are not looking for any. These
typically includes students, retirees, and
homemakers
 The deterioration of work conditions led to high
poverty and the exodus of skilled workers
CREDIT RATING
 Is a quantified assessment of the credit
worthiness of a borrower in general terms or with
respect to a particular debt or financial obligation.
 A credit rating or score can be assigned to
any entity that seeks to borrow money- and
individual, corporation state or provincial
authority, or sovereign government.
 A high credit rating indicates a high
possibility of paying back the loan in its
entirely without any issues; a poor credit
rating suggest that the borrower has had
trouble paying back loans in the past and
might follow the same pattern in the future.
The credit rating affects the entity’s chances
of being approved for a given loan or
receiving favorable terms for said loan.
BALANCE OF TRADE
Factors Can Influence a Country’s Balance of Trade?
 A country’s balance of trade is defined by its net
exports (exports minus imports) and is thus
influenced by all the factors that affect international
trade. These include factor endowments and
productivity, trade policy, exchange rates,
foreign currency reserves, inflation and demand.
 A nation has a trade surplus if its exports are
greater that its imports: if imports are greater that
exports, the nation has a trade deficit.
BALANCE OF PAYMENTS DEFICIT
 The country imports more goods, services and
capital that it exports.
 It must borrow from other countries to pay for its
imports
 In the short-term, this fuels economic growth
 In the long-term, it will have to go into debt to pay
for consumption.
BALANCE OF PAYMENTS SURPLUS
 The country exports more that it imports
 Country provides enough capital to pay for all
domestic production
 A surplus boosts economic growth in the short
term
 In the long run, it becomes too dependent on
export-driven growth.
Philippines has been running annual trade deficits due
to high imports of raw materials and intermediate goods.
In 2013, the biggest trade deficits were recorded with:
Taiwan, Saudi Arabia, Thailand and South Korea while
the biggest trade surpluses with: Japan, Hong Kong and
the United States.
GOVERNMENT DEBT
 A country’s gross government debt (also called
public debt, or sovereign debt) is the financial
liabilities of the government sector. Changes in the
government debt over time reflect primarily
borrowing due to past. Government deficits A deficit
occurs when a government’s expenditures exceed
revenues. Government debt may be owed to
domestic residents, as well as to foreign residents.
If owed to foreign residents, that quantity is
included I the country’s external debt.
 Government debt is typically measured as the
gross debt and the general government sector that
is in the form of liabilities that are debt instruments.
A debt instrument is a financial claim that requires
payment of interest and/or principal by the debtor to
the creditor in the future. Examples include debt
securities the debtor to the creditor in the future.
Examples include debt securities (such as bonds
and bills) loans, and government employee pension
obligations.
PHILIPPINE STOCK EXCHANGE INDEX (PSEI)
 PSEI is an acronym referring to the Philippine
Stock Exchange Index. It was also known as the
Philippine Stock Exchange Composite Index and
 “Phisix” many years ago. The index is composed
of the Top 30 companies listed on the Philippine
stock exchange. It is often used as a barometer of
the performance of the Philippine stock market.
 The companies of the PSE index are carefully
selected to represent and analyze the general
movement and performance of the stock market in
the Philippines. In a nutshell, PSEI is the
benchmark used to measure and scale the
performance of the Philippine stock market together
with its specific industry sectors and all the shares
index.
PSEI Index Series:
The Philippine Stock Exchange has 3 index series used
to measure and analyze the stock market as a whole. It
includes:
1. PSEI - composed of the top 30 companies
selected by the Philippine Stock Exchange
2. SECTORS INDICES - composed of 6 sectors
(Financial, Industrial, Holding Firms, Property,
Service, Mining and Oil)
3. ALL SHARES INDEX - complements everything
and it includes all the common stocks of companies
listed on the Philippine Stock Exchange.
PSEI, the 6 sectors, and all Shares index are used to
determine the stock market capitalization, growth, and
stability of the most significant companies in the
Philippines.