It’s now P53.80 to $1 as stocks take beating

The bloodbath in the local stock market continued yesterday due to investors’ anxiety over the runaway inflation of 6.4 percent in August and the rout in emerging markets.

The benchmark Philippine Stock Exchange index (PSEi) nearly closed at the 7,500 level yesterday before paring down losses later on to finish at 7,638.71, down 113.56 points or 1.46 percent.

At the close of the morning session, the PSEi retreated to as far back as 7,569.58, down 182.69 points or a staggering 2.36 percent. The intra day low was 7,552.24. The broader All Shares index lost 70.36 points or 1.48 percent to end at 4,661.66.

At yesterday’s trading at the Bankers Association of the Philippines, the peso continued to lose steam for the fourth straight trading day, hitting the lowest level since December 2005 after shedding 25 centavos due to a confluence of external and domestic shocks led by the runaway inflation.

The local currency closed at 53.80 yesterday from Wednesday’s 53.55 to $1. It opened

stronger at 52.525, but lost its momentum due to the strong demand for the dollar.

This was the lowest level for the peso for almost 13 years since closing at 53.985 to $1 on Dec. 7, 2005.

Traders said the Bangko Sentral ng Pilipinas (BSP) was again active in the foreign exchange market to smoothen the volatility.

“There was still some intervention observed from the BSP,” Land Bank of the Philippines market economist Guian Dumalagan said.

Volume remained heavy at $911.5 million, or about 40 percent lower than Wednesday’s $1.38 billion.

Dumalagan said the peso continued to weaken amid elevated inflation and lingering trade concerns involving the US, China, and Canada.

He added expectation of firm US labor reports also boosted the dollar.

BSP Deputy Governor Diwa Guinigundo attributed the weakness of the peso to the demand of the country’s growing economy.

“The economy continues to expand and you have all of those additional demand for foreign exchange,” Guinigundo said.

Guinigundo cited the peso was trading at around 56 to $1 in 2005 and 2006.

“Is this something that we should be worried about? It should concern us, but this is part of the essence of a flexible exchange rate. The exchange rate is flexible to accommodate these shocks in the system including from the domestic economy,” Guinigundo said.

Likewise, the BSP official said the Philippines has enough foreign exchange buffers to support the stability of the peso.

Meanwhile, spooked market investors and giant fund managers decided to dump their holdings of Philippine stocks.

Thus, total value turnover reached P6.714 billion. Market breadth was negative with decliners outnumbering advancing stocks by a huge lead, 161 to 37.

Forty-one issues were left unchanged.

Ed Francisco, president of BDO Capital said emerging market jitters mainly caused yesterday’s bloodbath.

“Concerns of emerging market sell-off and contagion plus news of some foreign managers reducing weight on the Philippines are affecting our equities and peso market,” Francisco said.

The unexpected 6.4 percent inflation in August – the highest in almost a decade and way above the 5.7 percent in July – continued to add to the concerns, but Francisco said most investors have already factored this in.

A fresh wave of shares and currency sell offs has hit emerging markets and the contagion is spreading fast across the different markets.

Among the worst-hit stock markets were Saudi Arabia, China and Indonesia.

Traders said investors are getting wary of investing in emerging markets on the back of a trade war that could be worse than earlier expected with the US likely to implement another wave of tariffs against China.

Jose Gabriel Perez of Papa Securities said negative sentiment from yesterday’s August inflation figure of 6.4 percent along with peso’s upward breakout from its recent consolidation weighed heavily on the index.

Net foreign selling continued to be above the P1 billion mark.

Specific stock losers were Alliance Global (-6.4 percent), DMCI Holdings (-5.6 percent), and Metro Pacific (-5.3 percent).

BDO which slipped 2.4 percent had the highest net foreign selling in the index of P347 million.

Foreign selling might continue today, said Perez especially if the peso weakness lingers.