Markets plunge as foreign funds exit Phl

MANILA, Philippines - Local financial markets suffered heavily yesterday as foreign fund managers continued to withdraw funds from equities and other local assets amid a slew of negative  news on the domestic front.

Analysts also said encouraging developments in the US prompted investors to exit the local bourse, dragging down the peso in the process to its lowest level in more than a year.

The Philippine Stock Exchange index (PSEi) plunged 4.64 percent or 318.95 points to settle at 6,556.65, the largest single day loss since slumping 5.13 percent on Sept. 23, 2011.

“Regionally, the trend is that foreign investors are exiting,” Jose Mari B. Lacson, head of research at Campus, Lanuza & Co. Inc., said in a phone interview.

“The selloff was driven by local economic data released yesterday plus the continued selloff of foreign fund managers,” said Freya Natividad, analyst at Papa Securities.

Philippines’ robust economic growth failed to offset figures in the jobless rate as unemployment rose to 7.5 percent in April from last year’s 6.9 percent while merchandise exports declined 12.8 percent last month.

“The critical here is the flow of foreign funds, until when will this rebalancing persist,” Justino Calaycay Jr., analyst at Accord Capital Securities, said in a phone interview.

The sharp plunge in the equities market brough the peso  to its lowest level in more than a year, closing  42 centavos lower at 42.78 to a dollar. This was the peso’s weakest performance since it hit 43.27 last June 8,2012. The Bangko Sentral ng Pilipinas (BSP) was quick to calm the market, which it said is reeling from positive news in the United States, which could trigger the scaling down of cheap stimulus money.

 â€œJust like other currencies in the region, the peso’s movement today has been driven largely by news from Japan and over the weekend from the US,” BSP Governor Amando Tetangco, Jr. said in a text message to reporters.

On the other end of the spectrum, private sector analysts and industry players have instead welcomed the development, saying the peso’s weakness is making the Philippines more competitive.

Sergio Ortiz-Luis Jr., president of the Philippine Exporters Confederation, said the country’s exports, which plummeted 12.8 percent in April, could become more attractive to buyers abroad at cheaper price.

 â€œThis is good news for us,” Ortiz-Luis said in a phone interview

The export industry was the sole drag to the already fast first-quarter economic growth of 7.8 percent, according to data from the National Statistics Office. Exports of goods and services contracted 6.6 percent during the period.

To help the exporters, the peso should move at its current level versus the dollar “for at least 60 days” which is the lag between the order and delivery of products, Ortiz-Luis pointed out.

The peso started weakening last May and has lost 2.3 percent since June 7, its biggest two-day drop since August 2007.

For his part, Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said a weak currency adds value to remittances from overseas Filipino workers (OFWs).

This, in effect, could give families more purchasing power, driving consumption and investments to support growth. As of the first quarter, remittances grew 5.6 percent to $5.112 billion, BSP data showed.

Emilio Neri Jr., an economist at the Bank of the Philippine Islands, said a five percent depreciation of the peso is additional five percent value for remittances, “which could not be taken for granted.”

 At the same time, Ravelas said business process outsourcing (BPO) companies, projected to become $16-billion industry that employs 720,000 people this year, are also likely to benefit.

Regional markets also down

Regional markets also suffered losses after Bank of Japan refused to implement more stimulus programs. Japan’s Nikkei 225 slipped 1.45 percent while Hong Kong’s Hang Seng index dropper 0.99 percent.

“We are entering a more volatile period,” Lacson said, adding that PSEi’s rally on Monday was quickly erased.

Locally, all counters were in the red, led by property firms that plummeted 6.15 percent or 171.17 points to 2,613.62.

Alll active shares were in the red. SM Investments (-5.47 percent), Globe Telecom (-2.4 percent) and PLDT (-4.19 percent) reported heavy losses.

The value of shares traded eased to P12.54 billion from P14.22 billion on Monday.

“From being a bear-dominated market, we can see more tug-of-war happening,” Calaycay said, adding that there will be a wide range of trades moving forward.