Stocks tumble, peso falls to 12-year low

The stock market went on a tailspin again yesterday, no thanks to the monster inflation which caught even government economic managers by surprise.

“There’s no need to further belabor the point – Wednesday’s big story was inflation. For a market that has had a stellar, if not hyper-extended, run, a not-so-slight hiccup such as this, may leave everyone gasping for air,” said Justino Calaycay, research head at Philstocks Financials.

The Philippine Stock Exchange index (PSEi), a barometer of investor confidence, nosedived to 7,752.27 not too long after the index returned to the 7,800 level.

The benchmark gauge plunged by 129.55 points, or 1.64 percent, yesterday after the government reported that inflation skyrocketed to 6.4 percent in August, the highest in almost a decade and breaching further the 5.7 percent inflation in July.

At yesterday’s trading at the Banker’s Association of the Philippines, the peso shed 1.5 centavos to close at its weakest level in 12 years at 53.55 from Tuesday’s 53.535 to $1. This matched the close of 53.55 to $1 on June 29, 2006.

The local currency hit an intraday low of 53.56 to $1 after the Philippine Statistics Authority (PSA) announced inflation hit a fresh nine-year high of 6.4 percent in August from 5.7 percent in July, bringing the average to 4.8 percent in the first eight months and exceeding the BSP’s two to four percent target.

A trader said the BSP was active in the market yesterday to smoothen the volatility of foreign exchange as volume reached $1.38 billion, more than three times the $440.75 million last Tuesday.

Foreign fund managers went on a selling spree with net foreign selling hitting the P1 billion mark for the first time since the P1.5 billion recorded on Aug. 14.

Traders said that while market investors expected inflation to have accelerated further, it was not expected to hit 6.4 percent.

A surprised Bangko Sentral ng Pilipinas said it would consider the need for more policy action.

BSP Governor Nestor Espenilla said, “It is most critical at this point to restore inflation back to the target range soonest and securely anchor inflationary expectations.”

It all went downhill for the market soon after the Philippine Statistics Authority (PSA) released the August inflation number around 10 a.m. yesterday.

The broader All Shares index shed 63.84 points, or 1.33 percent, to finish at 4,732.02.

Total value turnover was thin at P5.9 billion. Market breadth was negative, 146 to 51 while 38 issues were left unchanged.

Commenting on what happened, Piper Chaucer Tan, research associate at Philstocks Financials said the market quickly reacted on the inflation market after the morning bell.

“This may impose a more hawkish stance of BSP on its policy rates even as BSP missed the estimates from 5.9 to 6.2 percent,” Tan said.

Moving forward, Tan said, a crucial catalyst would be the earnings of corporates.

“If earnings will slow down this may be a sign that the economy maybe overheating,” Tan said.

Gio Perez of Papa Securities said indeed no one was happy at all with August’s inflation figure, which hit 6.4 percent.