PSE sheds nearly 300 pts since Friday

Deepening concerns about the health of the global economy sent the local stock market into a freefall this week, losing nearly 300 points following the collapse of Wall St. giant Lehman Brothers and the US Federal Reserve’s $85-billion bailout of global insurer AIG.

The 30-company Philippine Stock Exchange index (PSEi) has already lost 293 points or 11.1 percent since Friday’s close of 2,646.12, echoing Dow Jones’ steep decline due to collapsing investor confidence as a result of the financial turmoil in the US, ravaged by the downturn of the real estate sector. The PSEi closed 104.63 points lower yesterday at 2,352.37, its lowest close since July 3, 2008.

While predictions of an investor bubble has long plagued equities, news that other US financial institutions might be in the same predicament as AIG and Lehman seem to have finally pricked prices in a way even the first salvos of the credit crunch could not hammer down.

Conrado Bate, president of CitisecOnline, said the market is expected to remain bearish in the near term with no end in sight to the financial problems of the US.  “I think the market will continue to remain weak for some time as the financial crisis in the US continues to deepen, forcing investors to run for cover to safer investments.

Confidence in the stock market has been shattered and it will take some time before investors come back,” he said. 

Around the world, nervous traders flocked to gold, oil and made an unprecedented rush to short-term US Treasury bills, pushing yields down to their lowest levels since 1954 for what is normally seen as the safest of securities.

On the local front, foreign investors have been liquidating their investments to look for safe haven assets.

Accord Capital Equities’ Jun Calaycay said negative sentiment will persist as uncertainties still abound, pointing out that the failure of Lehman, the buyout of Merrill Lynch and the bailout of AIG will not be the last effects of the subprime crisis.

Around $506 billion has already been written off by institutions all over the world and there will be more to come, analysts said.

Astro Del Castillo, managing director at First Grade Holdings Inc., said the market will continue to take its cue from developments abroad as investors are tuned in to the unfolding drama in the US financial sector.

“The market remains chaotic. Don’t expect the problems to be immediately resolved.  Investors will remain wary until they see a clearer picture as to where the US economy is headed,” he said.

“Whatever bullish sentiment that had returned has been washed away in just a couple of days, more aptly put, since investors returned from the weekend. It had been a troublesome week with Lehman frantically chasing possible “saviours,” Calaycay said.

He, however said a technical reaction may come in the next few days. “Expect a more sensible trading next week as investors get to reassess the situation over the weekend,” he said.

With stocks reaching oversold levels, Bate said now could be a good time to invest in the stock market.

“We advise our customers who want to take advantage of the situation to invest for the long haul and apply the cost averaging methodology where one invests a fixed amount of money in regular intervals spread over a long period of time. We believe this is the best strategy in the market,” Bate said.