Window Dressing to push stock prices up?

James Ryan Jonas

Today, December 28, is the last trading day of the Philippine Stock Exchange (PSE). On Monday and Tuesday next week, the markets are closed for New Year celebrations, and the first trading day in 2008 is on Wednesday, January 2.

Is the market set to close higher today because portfolio managers and traders might try to “window dress” their portfolios in time for year-end 2007?

A bit likely. In a previous article, we explained that Window Dressing is a strategy employed by fund managers wherein they try to make their portfolio look as attractive as possible before presenting it to clients or stockholders.

In the days leading up to the end of the quarter or the year, fund managers would purchase recent winners while selling old holdings at a loss, in an attempt to show that they own the best-performing stocks of the period.

A few analysts and traders believe this holds true. In an interview with the Philippine Daily Inquirer, president of PCCI Securities Francisco Liboro said, “The market is now on its final trading week for 2007, and hopes are high that we will see a significant jump in share prices owing to window dressing.”

Still, local investors might choose to stay on the sidelines today as a reaction to yesterday’s slump in the US stock markets following the assassination of Pakistani opposition leader Benazir Bhutto. Fund managers might also decide to sell stocks today to lock in profit after a straight four-day advance of the PSE.

Yesterday I met with a friend who works as an investment manager and, while talking about stocks and investments, joked that he plans to spruce his portfolio up by aggressively buying certain stocks today. Whether that was half-meant, I’ll never get to know.

In any case, I’m all set to unload my holdings if and when stocks surge today. Should that happen, it’s going to be a nice, profitable way to end the year indeed.

What’s your bet, will the Philippine stock market close up or down from yesterday?

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.