Philippine Stocks Tumble Most in Five Years as Trading Resumes

by **Cals** Thu 22 Aug 2013, 11:28

Philippine Stocks Tumble Most in Five Years as Trading Resumes
By Ian Sayson - Aug 22, 2013 11:10 AM GMT+0800

Philippine stocks tumbled, with the benchmark index posting its biggest intraday retreat since October 2008, as local markets resumed trading after a three-day closure. The peso weakened to a two-month low and bonds dropped.
The Philippine Stock Exchange Index (PCOMP) declined as much as 6.9 percent before paring losses to 5.5 percent at 11:03 a.m. local time. The gauge sank to 6,164.18, heading for the lowest level since June 26. Philippine Long Distance Telephone Co. (TEL), the nation’s largest phone company, fell 4.1 percent. SM Investments Corp. (SM), owner of the biggest shopping-mall operator, slid 7.3 percent. The peso weakened 1 percent to 44.12 per dollar, while government bond yields rose to a one-month high.

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Traders work on the floor of the Philippine Stock Exchange in Manila. Photographer: Nana Buxani/Bloomberg

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Traders work on the floor of the Philippines Stock Exchange in Manila. Photographer: Brent Lewin/Bloomberg
The country’s stock exchange has been closed and trading of currencies and debt was halted this week because of floods in Manila and a public holiday yesterday. The MSCI Southeast Asia Index tumbled 5.5 percent during the period to the lowest level since July 2012, while Indonesia’s rupiah fell 3.7 percent and the Thai baht dropped 1.9 percent. Philippine central bank Governor Amando Tetangco said yesterday he expected volatility in local markets and that policy makers may act to minimize swings in the exchange rate.
“This drop looks very significant but considering we have been shut in the past three days we are just playing catch up with global markets,” said Rico Gomez, a money manager in Manila at Rizal Commercial Banking Corp., which oversees about $2.8 billion. “So far this is just indicative of Asian markets reaction to global developments and concerns that the U.S. will start to taper stimulus.”
Regional Rout
The combination of Indonesia’s record current-account gap, Thailand’s economic contraction and increased speculation that the Federal Reserve will pare stimulus spurred foreigners to sell $909 million of shares in the two Southeast Asian nations this week. Investors first began pulling money out of Thai, Indonesian and Philippine stocks three months ago after Fed ChairmanBen S. Bernankesignaled on May 22 he may reduce bond purchases that spurred capital inflows intoemerging markets.
The Fed will probably cut its $85 billion in monthly bond purchases next month, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13. Fed policy makers were “broadly comfortable” with Bernanke’s plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, minutes of their last meeting showed yesterday.
Economic Outlook
The yield on the Philippines’ 5.875 percent bond due March 2032 rose 20 basis points, or 0.20 percentage point, to 4.75 percent, the highest level since July 16, according to Tradition Financial Services. There will be “some spike” in borrowing costs amid speculation the Fed will reduce stimulus, Philippine Treasurer Rosalia de Leon told reporters today.
President Benigno Aquino suspended work in government offices in Manila for a second day on Aug. 20. At least eight people were killed and more than 100,000 fled their homes amid heavy rains that swamped as much as 60 percent of Manila and nearby provinces, according to the disaster and risk-reduction agency.
While the flooding may curb agricultural production and lead to higher food prices, it’s unlikely to have a meaningful impact on the nation’s economic outlook, said Paul Joseph Garcia, head of the institutional business at BPI Asset Management Inc., the second-biggest Philippine money manager.
Foreign Outflows
Gross domestic product in the Philippines increased 7.8 percent in the first quarter from a year earlier, the fastest expansion among 17 Asia Pacific economies tracked by Bloomberg.
“Domestic demand, which remains healthy, is seen to continue to be a core driver of growth,” Tetangco said.
Philippine markets are vulnerable to foreign outflows as the Fed moves closer to paring its unprecedented economic stimulus, according to Jonathan Ravelas, the chief market strategist at BDO Unibank.
The Philippines, Thailand and Indonesia led the four-year rally in global stocks through May as growing local economies sent corporate profits to record highs and the Fed’s bond-buying program spurred international investors to seek riskier assets. The Philippine equity gauge wasvalued at 18 times projected earnings for the next 12 months yesterday, the highest level in emerging markets, data compiled by Bloomberg show.
“Markets that attracted relatively more portfolio money this year and the previous years when global liquidity was generous will be vulnerable,” Ravelas said.
Philippine Long Distance fell to 2,942 pesos, the lowest level since July 17, and headed for the steepest loss since June 13. SM Investments dropped to 738 pesos, bound for the lowest close since June 25. Ayala Land Inc. (ALI), the nation’s biggest developer, sank 7.6 percent to 28.10 pesos, set for the largest retreat since June 13.
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