Peso, stocks fall on political concerns

The peso slid back to the 41-to-a-dollar level while local stocks snapped a two-day rise and bucked gains in other Asian markets yesterday as investors turned cautious amid a brewing political turmoil in the country, traders said.

The local currency opened at 40.91 to $1 in yesterday’s session and traded narrowly throughout the day before closing at 41 to the dollar, one of the rare times in recent months that it exhibited weakness against the greenback.

The weakness of the peso yesterday picked up from the momentum last week when the peso closed lower due to pressures created by fears of a US recession.

At the Philippine Stock Exchange, share prices also closed lower after a choppy session, as foreign investors trimmed their exposure in Philippine stocks ahead of an anti-government rally today, to be held in the country’s main financial district, analysts said.

“There’s political noise that makes the market cautious. Investors cannot afford to be complacent because of the shaky political situation in the country,” said Nestor Aguila, president of DA Market Securities.

Analysts said financial markets are also increasingly getting agitated over the ongoing hearings at the Senate that they said would affect market confidence on the country’s investment environment.

The renewed demand for President Arroyo’s resignation follows a recent testimony of a mid-level government official before a Senate inquiry over allegations of illegal kickbacks in a controversial $329-million  telecommunications deal between the government and Chinese company ZTE Corp.

“While investors at first brushed aside the noise, they are now getting nervous because more groups are calling for President Arroyo to step down,” said Jose Vistan Jr, research director at AB Capital Securities.

The analysts said the Philippines is already perceived as one of the most corrupt in the region and indications that the problem could be traced all the way to the highest offices is a serious blow at a time when global markets favored good governance.

According to forex traders, closing above 40.8 to the dollar would indicate that the peso would test the 41:$1 level that the market saw yesterday.

However, they added that risk aversion and political uncertainty would support the dollar and likely point to a weaker peso until the political vista clears enough for the market to go back to fundamentals.

“However, the peso’s wide interest differential against the dollar, coupled with the expected increase in dollar inflows from remittances and growth in outsourcing revenues, will underpin the Philippine peso in the months ahead,” the analysts said.

Domestic political concerns outweighed the good news from Wall St. US stocks jumped Wednesday as upbeat retail sales data for January helped ease concerns that US consumers are holding back spending amid rising unemployment, soaring fuel prices and faltering housing and stock markets.

At the same time, traders said concerns about the dilutive impact of property developer Ayala Land Inc’s planned sale of up to one million shares, which the company wants to be excluded from stockholders’ preemptive rights, also weighed on the stock market.

ALI’s stock tumbled 7.4 percent, eclipsing gains in heavyweights Philippine Long Distance Telephone Co (PLDT) and Ayala Corp. All three stocks are components of the 30-company composite index, which lost 11.75 points or 0.4 percent to close at 3,211.60.

The all-share index fell 7.98 points or 0.4 percent to 1,955.04. There were 61 decliners and 30 advancers, while 57 were steady. A total of 2.12 billion shares valued at P3.35 billion changed hands.

PLDT, the country’s biggest company by market value, gained P30 pesos or one percent at P2,990, stretching its rally into a third day. PLDT said its capital expenditure in 2008 is estimated to reach P25 billion or about $600 million. The amount, which is as big as last year’s budget, will be used in providing additional wireless, broadband and international bandwidth capacity and upgrading the company’s fixed-line network, and to expand its business process outsourcing investment.