PHL equities plunge drive peso to weakest level in over a year

(Updated 7:39 p.m.) The peso fell past the 43 per dollar mark on Tuesday as foreign investors continued to withdraw fund from domestic equities and other Philippine assets amid a slew of negative local news in the face of encouraging developments in the US. 

 

The local unit shed 42 centavos to 43.2:$1 from 42.78:$1 Monday, the currency's weakest since June 8, 2012 when it closed down to 43.27:$1. 

 

Ildemarc  Bautista, research head at Metropolitan Bank & Trust Co., said Standard & Poor's change of outlook for the better on US debt—to stable from negative—added to speculations the Federal Reserve will start taper off its $80-billion bond buying program, dubbed as quantitative easing. 

 

“The consensus is that it's about talks of the US ending its quantitative easing. This results in investors giving up risky assets like peso-denominated ones and turning back to US-dollar assets,” Bautista said in a telephone interview. 

 

Speculations about the Fed unwinding stimulus have eroded the appeal of risky assets, driving investors toward safe-haven US assets and weakening Asian currencies. 

 

A trader at local bank said foreign withdrawals from the Philippine Stock Exchange (PSE) were  “intense.

 

“The depreciation of the peso was mainly driven by decline on the Philippine Stock Exchange and demand for dollars from corporates,” the trader said. 

 

In line with a general weakness in region's markets, the PSEi shed 318.95 points or 4.64 percent to close at 6,556.65. 

 

“Bad” economic data like sluggish exports and increased joblessness also spooked foreign investors away from Philippine assets, the trader noted. 

Bangko Sentral ng Pilipinas Governor Amando Tetangco, Jr. brushed off the peso's fall, saying it was part of normal market movements.

“Markets tend to behave this way, trying to test how far daily volatilities (sic) can be stretched.  In a manner of speaking therefore, today's price action should not come as too much of a surprise,” Tetangco said in a text message to reporters.

“The fundamentals continue to support the peso. Daily moves won't significantly impact inflation forecast, but a sustained move in either direction would,” he added.

Healthy international reserves continue to support the peso's strength, which cushion price pressures stemming from imported goods.

Tetangco, however, said, “But we are watchful of market conduct as market participants also tend to go ahead of themselves and overshoot.”
 
Bautista also said the stronger dollar sentiment is “a systemic thing and is regional if not global in nature.”

 

The trader noted that “dollar demand coming from corporations” that need to service mid-month requirements also weighed on the peso. 

 

Tacking bids ahead of the Monetary Board's policy meeting, the trader sees the peso moving within the 43.10 to 43.40 per dollar band on Thursday. 

 

Philippine markets are closed on Wednesday for the Independence Day. Trading will resume on Thursday. — VS, GMA News