A year of risk aversion ends; bleaker one begins

MANILA, Philippines - The Philippine stock market is expected to improve—the question is when. Despite a global crisis that has triggered a string of bankruptcies leading to job cuts among Filipinos working abroad, market participants remain confident that the local bourse will see a turnaround. But how soon will that be? Analysts interviewed by GMANews.TV gave mixed responses. Which just underscores the depth and the complexity of a crisis that began when Americans defaulted on their housing loans, a situation that later tightened credit and crimped demand for goods and services in the world's largest economy. Jonathan Ravelas counts himself as among the optimists. The Banco de Oro treasury group vice president for market research said that the world economy may find some footing by the second half of 2009. As such, he expects the Philippine stock market to improve at around that time. He said most investors are keenly watching what Barack Obama's administration will do to shore up the US, the Philippines' largest trading partner, once the President-Elect formally takes office on January 29. "The Philippines is in a much better position to face this crisis, compared to the 1997 Asian financial crisis," he added. Besides the Philippine government's efforts to pump-prime the economy, consumer spending is also to support local growth, further boosting expansion. Most of the growth will be fueled by gains from remittances of overseas Filipinos, Ravelas said. Stock market next year may be worse than 2008 However, two other analysts refused to give any categorical forecast for the market, muting Ravelas' optimism. "It is very hard to say [how the market] will perform next year," Jose Vistan, AB Capital Securities research chief, said. He nevertheless recognized that recovery may be possible by the second half of next year. Astro del Castillo, managing director at First Grade Holdings, provides a bleaker outlook. The equities market for 2009 might prove to be worse than 2008 for the equities market, he said. Although the economy posted a respectable 4.6-percent growth in first three quarters this year—slower than the three-decade high of 7.2 percent growth in 2007—local equities suffered heavily. "We could not say how long and how deep the impact of this crisis is. Recovery may only come in 2010," del Castillo said. During December 24, the last trading day of the year, all numbers of the Philippine Stock Exchange (PSE) ended in the negative. The PSE index plunged to 1,827.85 points as of December 24, 2008, 48.29 percent lower than 3,621.60 points recorded during the last trading day of 2007. Meanwhile, the all-share index plummeted by 46 percent to 1,196.99. Of the six sub-indices, mining and oil suffered the worst, losing 61.53 percent, followed by property's 57.58-percent decline, and holding companies' 55.93-percent fall. Other sectors—financials, industrial and services—also shed anywhere between 47.14 percent and 39.86 percent. Foreigners were net sellers of stocks worth P47.85 billion as of end-2008 from net foreign buying of P55.568 billion as of end-2007. The year also saw the market lose 49 percent of its value from P7.978 trillion as of last year to P4.06 trillion. Capital diminished by about 65 percent to P31.55 billion from last year's total of P90.131 billion. In October 27, the PSE dropped 239.66 points or 12.27 percent to a four-year-and-one-month low of 1,713. It was the biggest percentage drop in one session in the exchange's history and the largest fall in terms of points since February 2007. Del Castillo said that for the first quarter of the year, he sees the main index trading at a range of 1,700 to 1,900 points. "The numbers that are coming out remain negative," he said, noting that US consumer confidence index plunged to 38 from 44.7 in November while unemployment jumped to a 15-year high. Likewise, additional job losses in the US are expected in the first half next year, further threatening demand for Philippine exports. 2008: a year of risk aversion Foreign investors remained risk-averse, selling local stocks and choosing to place cash in safer havens, Rizal Commercial Banking Corp. senior vice president Marcelo B. Ayes said. Some even preferred to stay liquid amid the volatility in international markets, he added. As a result, "hot money"—or foreign investments in the stock market, government securities, money market instruments, and bank deposits—have exited from the Philippines. Foreign portfolio investments amounting to $1.3 billion have left the country from January to November this year, data from the Bangko Sentral ng Pilipinas (BSP). This is a major reversal from the $3.7 billion worth of net inflows reported during the same period last year. The huge sell-off also reduced the peso's strength since investors disposed of their local stocks and bought dollars to re-invest them somewhere else. Peso expected to weaken further The Philippine peso, Southeast Asia's best performing currency with an 18.8 percent appreciation in 2007, sunk 13.3 percent this year. It closed at P47.52 to a dollar on December 24, the last trading day in the Philippines for 2008. "The peso was really expected to weaken due to risk aversion but in relative terms, taken in the context of how the peso performed in the last two years, it was not that bad," a Manila-based trader said in a phone interview. The peso is expected to continue weakening as signs of the end of the global financial crisis remains elusive, the trader said. The peso, however, will have some cushion of support from what is also seen as a weakening of the US dollar. "Next year should be a little better [for the peso]. The dollar will be under pressure because of what's happening in the US and down the road, more dollars will be pumped in," the trader said. Forecasts of a weaker peso are shared by another local trader, who expects a wide range of P45 to P50 against the dollar. Aside from the international foreign exchange drivers, he pointed to negative expectations in the domestic front affecting the local currency. "It depends on what happens in the US market but on the local front, it is still negative for the peso. The deficit is widening and when that happens, the debt level rises and that's always negative for the Philippines," the trader said. - With Robert JA Basilio Jr, GMANews.TV