Local shares suffered another day of sharp losses on Thursday as foreign funds stepped up their pullout from the region amid investor worries the US Federal Reserve would scale back its huge bond-buying program that have propped up global stock markets.
The main Philippine Stock Exchange index (PSEi) plunged 6.8 percent, or 442.57 points, to close at 6,114.08, one of the worst bloodbaths in local history in which decliners swamped gainers 10-1. Value turnover was heavy at P16.1 billion.
Manny Cruz, chief strategist at Asiasec Equities, said foreign-managed exchange-traded funds (ETFs) have been dumping local stocks since Tuesday when the PSEi fell 4.6 percent, or 318.95 points. The market was closed on Wednesday as the nation observed Independence Day.
“They are converting into US dollars and moving out,” Cruz said, noting that the most battered markets were those under the Thailand-Indonesia-Philippines (TIP) bloc of emerging markets as well as Japan.
“TIP as an emerging market group spearheaded the uptrend in the region in the last three years. These markets were the best-performing and so they are also now being hit by the hardest profit-taking,” Cruz said.
“Foreign investors are rushing out the door to secure whatever gains they still have,” said April Lee-Tan, research head at COL Financial.
The PSEi has now given up 1,289.57 points, or 17.4 percent, since hitting an intraday peak of 7,403.65 on May 15. Since the start of the year, however, the index is still up 5 percent, or 301.35 points.
The biggest index losers were San Miguel Corp. (-11.58 percent), Bloomberry Resorts (-9.86 percent), Alliance Global Group (-8.86 percent), Jollibee Foods Corp. (-8.77 percent), Aboitiz Equity Ventures (-8.65 percent), Banco de Oro Unibank (-8.61 percent), Megaworld Corp. (-8.45 percent), SM Prime Holdings (-8.39 percent), Ayala Land Inc. (-8.33 percent) and International Container Terminal Services Inc. (-8.14 percent).
The withdrawal of foreign funds has pulled the peso down to the 43-level against the US dollar. On Thursday, the peso closed at 43.10 against the greenback. Volume of trade at the Philippine Dealing System amounted to $947.615 million.
Even so, the Bangko Sentral ng Pilipinas (BSP) sees no need to intervene in the financial markets, saying the stock market fluctuations and peso volatility were no cause for alarm.
“What we saw was just a healthy correction in the equities market. People were thinking that the price-earnings ratio was becoming high, although there are fundamental bases supporting the expensive equities given the strength of the Philippine economy,” BSP Deputy Governor Diwa Guinigundo told reporters.
Before the sharp declines, Philippine equities had been trading an average of 22 times price-earnings ratio, making local stocks relatively expensive.
“The movement of the peso is not unique as other currencies in the [Asian] region also are falling [against the dollar]. The peso’s volatility, in fact, is lower than those of other regional currencies,” Guinigundo added.
BSP Governor Amando Tetangco Jr. expected the pullout of foreign funds to be short-lived, saying the country’s macroeconomic fundamentals remained strong and attractive to investors.
“Underlying fundamentals remain sound,” Tetangco said on Thursday in a text message to reporters. He cited the still benign inflation and the robust pace of economic growth.
The Philippine economy grew by 7.8 percent year on year in the first quarter, the fastest growth rate in Asia for the period that surpassed even that of China’s 7.7 percent. Inflation averaged at 3 percent in the first five months of this year, the low end of the government’s target of 3-5 percent for this year and next.
The Philippines has also been given an investment grade rating by two major global credit watchers—Fitch Ratings and Standard & Poor’s.
Local stocks tracked losses in global markets as worries about a surging yen and a tightening of US monetary policies fueled gyrations on the Tokyo market, the Asian region’s biggest.
Investor skepticism about the economic strategies of Prime Minister Shinzo Abe for extricating Japan from two decades of stagnation also figured high in the Nikkei 225’s big drop.
Japanese media reports said overseas hedge funds may be dumping Japan’s equities following disappointment over the Bank of Japan’s decision earlier in the week to refrain from additional monetary easing measures.
The Nikkei 225 index plunged 6.4 percent to close at 12,445.38. Adding to the woes was the dollar’s recent fall, trading at about 94 yen late Thursday, slipping momentarily to 93-yen levels. A cheap yen is a boon for Japan because it helps the nation’s giant exporters by raising their overseas revenue when translated into yen.
In early European trading, Britain’s FSTE 100 fell 1.2 percent, Germany’s DAX slid 1.9 percent, while France’s CAC-40 shed 1.2 percent.
Ahead of the opening bell, Wall Street likewise appeared headed for losses.
Elsewhere in Asia, Hong Kong’s Hang Seng index fell 2.2 percent, South Korea’s Kospi lost 1.4 percent and Thailand’s SET slipped 3.8 percent.
Stocks in mainland China were pummeled as accumulating signs of a slowdown in growth in the world’s No. 2 economy caused investors to retreat. The Shanghai Composite Index slid 2.8 percent to 2,148.36, its lowest close in six months.
“Investors are gloomy over the future economic outlook. It would be hard for the market to go up in the long term,” said Cai Jing, an analyst at Shanghai-based Yintai Securities.
A major driver in markets has been the uncertainty over the future course of US monetary policy following a solid, if unspectacular, improvement in US economic data.
The markets now expect some reduction in the US Federal Reserve’s monthly asset purchases sometime this year. The stimulus has been one of the main reasons why many assets, such as global stock markets and emerging markets, have bounced back.
Analysts said markets would likely remain on edge until next week’s Fed policy meeting for greater clarity on the timing and extend of any tapering.
“Risk appetite continues to shrink as the ongoing nervousness over Fed tapering continues to provoke significant position adjustments across markets,” Mitul Kotecha of Credit Agricole CIB in Hong Kong said in a market commentary.—With a report from AP