Index continues to drop as US rate woes persist

Shares slid to 18-week lows yesterday, spooked by the prospect of higher US interest rates, which appears to be causing foreign investors to pull money out of stocks.

The benchmark 30-company Philippine Stock Exchange Index ended below its 2,100-point support with a loss of 53.29 points, or 2.5 percent, to 2,067. It was the lowest finish since Feb. 8, when it closed at 2,060.92. On Tuesday, the index lost 1.8 percent.

"It’s still the overhang of higher US interest rates that caused the market to drop," said PCCI Securities President Francisco Liboro. "The problem is that foreign funds are liquidating their portfolio in the region and holding on to the funds while waiting for the Federal Reserve meeting."

The Federal Open Market Committee is set to meet June 28-29, and many investors were expecting another quarter percentage point hike in its key short-term rate target, which would be the 17th straight increase by the monetary authority.

Blue chip Philippine Long Distance Telephone Co. (PLDT) was the most actively traded stock, shedding 4.8 percent to close at P1,775, following the 3.4-percent loss suffered by the company’s American depositary receipts in New York Tuesday.

Property stocks also were hard hit on concern the impact of higher US interest rates will eventually spill over the domestic financial market.

The Philippine Central Bank so far has been able to maintain a neutral monetary policy despite the steady rise in US interest rates, citing expectation of a slowdown in the increase in consumer prices during the second half.

Ayala Land lost 2.1 percent to end at P11.50, while SM Prime gave up 2.8 percent to close at P6.90.

Philex Mining A was down 2.6 percent at P2.70, while Philex B fell 3.1 percent to P2.75 on the steep drop in world metal prices.

Stocks are falling "because of expectations of increases in interest rates,’’ said Grace Cerdenia, head of research at 2TradeAsia.com in Manila. The Treasury and the Bangko Sentral ng Pilipinas (BSP) may also raise rates to support the peso and peso-denominated assets on "expectations of higher Fed rates."

The Philippine central bank, which has kept its key rate steady at 7.5 percent since October, has its next rate-setting meeting on June 29. The US Federal Reserve, which has raised rates at each of its last 16 rate-setting meetings, will have its next such meeting on the same day.

In trading among banks and other investors, the yield on the 91-day Treasury bill (T-bill), which is used as a benchmark for loan rates, yesterday climbed to 9.095 percent, the highest since October last year. – AP