Stock mart loses P500B

REPORT FROM BUSINESSWORLD The 30-company PSEi, from May 8 to June 21, lost by as much as P500 billion in market capitalization -- to P1.48 trillion from P1.98 trillion or 531.40 points, as a result of funds that shunned the market in anticipation of a rise in United States interest rates. The bourse slumped to its weakest level in six months on Wednesday to 2,057.77 as funds moved quickly from one form of investment to another to take advantage of changing international exchange, or the so-called hot money. Market capitalization is an estimation of the value of a business that is obtained by multiplying the number of shares outstanding by the current price of a share. On May 8, the PSEi breached the full-year target of 2,500 points as it hit the highest closing level in seven years since July 13, 1999 when the stock index finished at 2,604.49. The PSEi posted its biggest single day increase in five years by gaining 118.93 points to 2,589.17. The index had jumped by 17.56% or 255.13 points on Jan. 22, 2001 as investors, perked up by the government’s positive report on the country’s growth and upbeat corporate developments, bought stock that sells at a high price because of public confidence in their long record of steady earnings. The market recovered on Thursday, however, and snapped the downtrend as share prices recovered due to bargain hunting and buoyed by a rally in Wall Street. Elena Ponceca, Unicapital Securities, Inc. research head, pointed to the "exodus" of foreign funds as one of the main reasons for the downtrend. Ms. Ponceca said the lingering concerns could ease up as many have accepted a possible 25-basis- point rate increase to be endorsed by the US Federal Reserve board in its meeting next week. Jonathan L. Ravelas, Banco de Oro Universal Bank market strategist, said hedge funds that heavily invested outside the US, are rethinking their position in response to a Fed rate adjustment. A hedge fund is an investment company that uses high-risk techniques, such as borrowing money and selling short, to make extraordinary capital gains. Gonzalo G. Ordoñez, First Metro Securities Brokerage Corp. first vice-president and chief operating officer, said hedge funds started looking at opportunities in emerging markets, including the Philippines, to seek more returns on investments. But as US interest rates inch up to make dollar investments attractive, investors tend to shun from gold and copper issue in emerging markets and invest in the greenback, he added. "What is happening is rates are going up in the US while funds are going out of emerging markets." Francisco Liboro, PCCI Securities Brokers Corporation of the Philippines president, said the prospects of emerging markets in Asia are good this year, but when stock weights go down or are perceived to be overvalued, fund managers either book profits or shy away to protect their investments. Mr. Liboro said there is a prevailing regional sell-off of stocks, but whose effect was not felt as much due to the relatively good economic fundamentals such as a controlled budget overspending, manageable level of loans and a relatively low inflation rate. Mr. Ravelas, however, said although the fundamentals are stable, said there is "some shadow of doubt on the sustainability" on the fiscal side, particularly on the collection efficiency of revenue agencies as against their targets. "The budget of government hinges on lowering interest rate scenario. In the first quarter, everybody was poised to see interest rates lower. But this was reversed. That time, the assumption of the market was the US Fed was done on the tightening cycle. However, with the changing of the guard [US Fed chairman], they see inflation is lurking in the shadows which is dangerous as the US Fed may overreact," he added. Mr. Ravelas said the fiscal reforms goes beyond the implementation of the expanded value-added tax. "We want to be able to maintain the fiscal program for a balanced budget by 2008." -- RAMR/BusinessWorld