Philippine stocks slumped, with the benchmark index posting its biggest intraday retreat since October 2008, as local markets resumed trading after a three-day closure. The peso headed to an 18-month low and bonds dropped.
The Philippine Stock Exchange Index (PCOMP) declined 6 percent to 6,136.73 in Manila, the lowest close since June 26, after tumbling as much as 6.9 percent. Philippine Long Distance Telephone Co. (TEL), the nation’s largest phone company, fell 4 percent. SM Investments Corp. (SM), owner of the biggest shopping-mall operator, slid 8.9 percent. The peso weakened 1.1 percent to 44.15 per dollar, heading for the lowest close since Feb. 1, 2011, while government bond yields rose to a one-month high.
The country’s stock exchange was 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 sank 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.”
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 buying that spurred capital inflows into emerging markets.
The Fed will probably cut its $85 billion in monthly bond purchases next month, according to 65 percent of economists surveyed by Bloomberg from 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.
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 16 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.
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 was valued at 18 times 12-month projected earnings 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.
The Philippine Stock Exchange Index’s 100-day volatility reached 29.97 today, the highest level since March 2009, according to data compiled by Bloomberg.
Philippine Long Distance fell to 2,946 pesos, the steepest loss since June 13. SM Investments dropped to 725 pesos, the sharpest decline since Oct. 27, 2008. Ayala Land Inc. (ALI), the nation’s biggest developer, sank 8.2 percent to 27.90 pesos, the largest retreat since June 13.
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