Stock selloff continues
The local stock market continued to bleed yesterday, a casualty or worsening a trade war between the US and China as well as concerns over how the Bangko Sentral ng Pilipinas will act to manage rising inflation and a weakening peso.
The Philippine Stock Exchange index lost another 101.50 points, or 1.37 percent, to close at 7.312.61 – a level approaching what traders describe as “bear market’ with all sectoral indices also in the red. Volume was slightly lower at 909.21 million shares worth P6.89 billion. Decliners continued to swamp advancers, 125-70, with 47 unchanged.
Sharp declines were also suffered by key markets in the region – Tokyo, Hong Kong and Shanghai. Europeans markets also opened lower.
IB Gimenez Research Head Joylin Telagen said local stocks fell to a 15-month because the trade war between the world’s two largest economies poses the biggest threat to global economic growth.
“Philippine shares were not spared by the onslaught as US President Trump directed USTR to identify $200 billion of Chinese goods for tariffs, after citing China raising tariffs is unacceptable and further action must be taken against China,” said Regina Capital Development Corporation Managing Director Luis Limlingan.
He added that, “the Philippines continued to face more headwinds than other regions. This was because analysts are torn on the outcome of the BSP's meeting tomorrow.”
Many are debating whether the BSP will leave policy rates unchanged, keeping the overnight reverse repo rate at 3.25 percent and the overnight deposit rate at 2.75 percent.
“This is because overall inflation has been creeping up, driven mostly by supply side factors and TRAIN. The peso has also weakened touching 53.50 to the USD as a result of this,” Limlingan explained.
A slim majority of economists believe the BSP will raise interest rates on Wednesday, but opinions are sharply divided, with the weak peso likely to be the factor that will tilt the scale.
SB Equities said an imminent hike in inflation rate would warrant another modest hike in key interest rates.
BSP Governor Nestor Espenilla said that the central bank is ready to act in terms of adjusting key interest rates in order to achieve the government’s inflation target as well as to avoid excessive volatility in the foreign exchange market.
“If such rate hike decision occurs tomorrow, this would be the second time for the year that key interest rates have been adjusted. However, we think that persistent pressure for the peso to depreciate on global risk aversion and BOP deficits as well as ongoing inflation buildup may necessitate a third policy rate hike this year, i.e., in Q3,” SB Equities said.