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Philippine peso, stock market stable despite martial law declaration

MANILA, Philippines – Despite some dips, the peso and stock market remained broadly stable on the first day of trading after President Rodrigo Duterte declared martial law in Mindanao.

The Philippine Stock Exchange index (PSEi) in fact ended Wednesday, May 24, by hitting a slight gain of 25.68 basis points, up 0.33% at 7,837.82.

All indices registered gains, save for holding firms, services, and mining.

The peso, on the other hand, fell 17.5 centavos to close at P49.995 to the US dollar from the previous day's P49.82.  It opened weaker at P49.95 to $1 and even touched the P50 to $1 level briefly.

The dollar strengthened against the peso as volume of trade was also up at 582,400 million compared to 572,000 million on Tuesday, May 23.

"The dollar appreciated because of safe-haven buying as a result of the declaration of martial law. The index was also down initially because of the same reason, but it eventually bounced back, likely due to bargain hunting," said Guian Angelo Dumalagan, market economist at the Land Bank of the Philippines.

ING Bank Manila senior economist Joey Cuyegkeng also noted that markets were not just impacted by the declaration but also by the surprise Moody's credit rating downgrade of China by one notch on Wednesday morning.

The last time a security threat provoked an emergency response – the declaration of a state of lawlessness in September last year – the PSEi was down 43.37 points or 0.55% on the first full day of trading.

Despite the stability, Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr cautioned not to expect robust performance in the next few days.

"There may be some transitory or temporary cautiousness, but in the end it will lead to positive impact on sentiment," Tetangco said.

"I think it is a very decisive move on the part of government and the main objective is to improve the security as well as peace and order situation which should lead to even greater confidence down the road," he added.

The BSP governor also pointed out that currencies in the region have been weakening due to the continued strengthening of the US dollar.

"You might note that the rate of weakening of the peso has been somewhat higher than the other currencies but this is because of the cautiousness. As I have said, there is some cautiousness and there is also legitimate corporate demand at the same time," he explained. – Rappler.com