Worst may be over for PH stocks

Chris Schnabel
A GDP number over 5.7% will probably entice buyers back to the market, analysts say

DRAGGING DOWN. China's stock market fall and it slowing economy have sparked a global panic in equities that finally reached the Philippines on Monday, August 24, as stocks fall 6.7%. File Photo by Wu Hong / EPA

MANILA, Philippines – Panic has taken over the market, analysts said, but the majority think that the worst of the sell off is over and that a stable and growing economy will eventually calm the markets.

“Clearly when you have a little bit of a market panic, you have these types of events but I think what happens in one day does not necessarily make a trend,” said Philippine Stock Exchange (PSE) President Hans Sicat on the sidelines of a startup entrepreneurship event on August 25.

“Although it is clear that there is a lot of volatility right now,” he added.

There is discontinuity between the fundamentals of the Philippine economy and what’s happening in the markets, according to Sicat. “The real economy is doing fine relatively speaking but financial markets are going through a tantrum,” he added.

The Philippine stock market plunged 6.7% on Monday, August 24, wiping out this year’s record gains, as worries over the impact of China’s slowing economy sparked a fresh rout in Asian stocks.

Trading at the PSE was halted on Tuesday, August 25 and resumed after about 5 hours due to a technical glitch in the trading system.

Catch down

“The PSE will probably rebound as soon as it is near reasonable values,” Alvin Ang, former president of the Philippine Economic Society, said in a text message.

Bank of the Philippine Islands (BPI) research officer Nicky Mapa agreed: “I think the worst is over for now and this was a shakedown and a reaction to the holiday catch down,” he said in an email to Rappler.

The “catch down” was due to the PSE being closed on Friday, August 21, for a public holiday as global securities took a massive hit.

Mapa explained the global sell off on Friday was sparked by a weak China Purchasing Manager Index (PMI) number, as measured by the Caixin PMI survey.

A PMI is a set of economic indicators that measure the health of the manufacturing sector through monthly surveys of private sector companies.

“This fueled safe haven demand and investors quickly rushed to get out of risk assets, forcing weakness in both currency and equity markets,” Mapa said.

Foreign selling in equity markets exacerbated the move, and oil dropped to below $40 a barrel, he added.

The Chinese government also devalued its currency, the yuan, earlier this month in a move widely seen by analysts as an attempt to boost the competitiveness of its export sector.

“As the world’s major producer of almost all manufactured products, the moves signaled weak growth (to investors),” said Ang.

This caused investors to turn overly bearish or pessimistic toward the market, dumping risk assets as attention has turned to the slowdown in China and its possible effects on the global economy, he explained.

Safe havens

Developing markets were particularly hit due to their perceived instability globally, Cid Terosa, senior economist at the University of Asia and the Pacific explained.

“The devaluation of the Chinese stock market and the Yuan gave investors good reason to move money away from developing economies like the Philippines as they search for safe havens,” he said.

This was what happened to regional equity and currency markets leading to the global sell off on August 21:

BLOOD BATH. Most Asian equities are in red, indicating a fall, with China falling the hardest on August 20, 2015. Source: BPI Research and Bloomberg
SEA OF RED. The Philippine peso is saved from the blood bath Friday, August 21 due to holiday, as some regional currencies took a beating. Source: BPI Research and Bloomberg

Q2 GDP results

Market activity might be further affected by the release of the second quarter gross domestic product (GDP) results which will be announced on Thursday, August 27.

“We’re hoping for a number higher than the first quarter growth of 5.2%. This type of real economy figure tends to influence the market and calm it down,” the PSE president said.

“With regard to GDP, markets seem to be more allergic to bad news than they are to being receptive over good news,” Mapa said.

BPI’s 2nd quarter GDP forecast is 5.8%.

Moody’s Corporation economics research division said in its latest report that the country’s gross domestic product (GDP) likely grew 6.8% in the second quarter of the year on the back of higher government spending. (READ: PH economic growth picking up despite slip in exports – Moody’s)

A GDP number over the general consensus of 5.7% will probably entice buyers back to the market, he explained, but a number below would elicit a graver response since GDP growth is probably one of the few things setting the country apart from our slowing regional peers.

Sicat said the Tuesday trading halt was unrelated to the sell off and that similar glitches have already been observed earlier this month. (READ: PH stock exchange records longest trading halt)

“We can’t intervene in the markets,” he said. – Rappler.com