Peso breaches 49 to $1; stocks weaken

The peso Monday slid to an eight-year low, a level of weakness previously achieved at the height of the global financial crisis in 2008. The close of 49.20 to $1 at the start of the week was the weakest since the local currency ended at 49.37 on Dec. 4, 2008.

The local stock barometer has also wiped out all gains made earlier this year 2016, sliding to the 6,800 level as US policy risk arising from Donald Trump’s election as the new president escalated aversion to most emerging markets.

The Philippine Stock Exchange index (PSEi) shed 103.61 points or 1.49 percent to close at 6,871.48 Monday as foreign investors trimmed their exposure to emerging markets.

The PSEi has now fallen below the 6,952.08 level in end-2015. It has likewise slid by 15.3 percent from the stock barometer’s peak of 8,118.44 last July.

Foreign investors were heavy sellers in the locals stock market, resulting in a net outflow of P1.69 billion for the day.

At the Philippine Dealing System, the domestic currency reached an intraday low of 49.20 to $1 and a high of 49 after opening at 49.01. The total volume traded slid to $661.85 million from $707.5 million last Friday.

“The other regional currencies also showed weakness today because the expectation of the market is the policies that are going to be adopted by the US government [under Donald Trump] will likely lead to higher interest rates, particularly treasury rates, and as a result of that, capital flows are being moved to the US. That’s regional, emerging markets-wide,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. explained.

Bank of the Philippine Islands associate economist Nicholas Antonio T. Mapa said the weaker peso was still due to the result of the election in the US, referring to Trump’s unexpected win as president, which pundits said was making markets jittery amid policy uncertainty.

“The US dollar-peso [pair] jumped higher as the dollar continued to pummel regional currencies on soaring US treasury yields. Chances for a Fed rate hike were also bumped up in reaction to comments from Fed Vice Chair Fischer, lending more strength to the dollar. Heavy foreign selling in the local equity market, which fell 1.49 percent, also forced the peso to see its weakest level since Dec. 4, 2008,” Mapa said. “But I believe this is temporary and the peso will recover. I don’t think the peso will go beyond 50 to a greenback and we maintain our forecast of 49.02 versus the dollar by yearend.”

Despite the weaker peso and external shocks, economists were optimistic that the Philippines would continue to sustain strong economic growth amid solid fundamentals.

“In terms of financial flows, the Philippines is currently buffeted by the ‘Trumpest’ as the PSEi craters below 7,000 and bond markets finally reprice. The peso has also been under siege but with more than $85 billion tucked away in Tetangco’s piggy bank, we are seen to ride out the storm better than we had in 1997,” Mapa said in a separate report Monday, referring to the country’s robust dollar reserves.

For Mapa, the Philippines would “weather the storm” even as Donald Trump’s victory in the US presidential elections might impact on remittance flows as well as trade.

“The Philippines is connected to the world economy and the repercussions of an ‘America for America’ would find its way to our shores. Trade, of course, is the most obvious link as the US is our second-largest trading partner,” Mapa said.

“Remittances, an integral part of our growth engine, may also be vulnerable but I suspect remittances will continue to find their way back home, as they always do,” he added.

In a separate report titled “Will uncertainty Trump Asia?” Oxford Economics lead Asia economist Priyanka Kishore said that “overall, we think that [Trump’s expected] protectionist measures would weigh down Asia’s growth, but inward-looking economies like India and the Philippines are likely to weather this better as compared to the more open economies like [South] Korea, Taiwan and Singapore.”

“Clearly we know little about actual Trump administration policies which will be pursued—this in itself will create uncertainty. From the election campaign, one can surmise that Mr. Trump is not exactly trade-friendly and would like to renegotiate certain security agreements. Increased tariffs toward goods made in EM (emerging markets) would have an impact on liquidity and profits within EM. Neither of these two outcomes are a positive for EM,” Citigroup said in a research note Monday.

“Until the market has greater clarity, the risk premium for risk assets will remain high. This will hurt EM,” it said.

Monday, India underperformed other Asian markets as its main index slid by 2.69 percent. The main stock barometers in Indonesia, Hong Kong and Thailand were likewise down by more than 1 percent while stock indices in Malaysia, Singapore, Korea and Taiwan also slipped. On the other hand, China’s main stock barometer rose by 0.45 percent.

“I expect volatility to continue as markets try to decipher potential policies from Trump. Having said that, there is downside risk to the market from foreign funds outflow as investors price in a Federal Reserve rate hike in December and a more aggressive fiscal expansion in the US,” said BPI Securities president Michaelangelo Oyson.

“So far, the results season has provided additional reason to be more excited by the market. While I don’t think the BPO sector is in the line of fire of Trump’s policies of bringing back jobs back to the US, investors may continue to price in such risk as we have seen in the recent share price movements of ALI, RLC and Megaworld,” he said.

But as the market continued to correct, Oyson said the stock market was close to entering “buy” territory.

Also contributing to the PSEi’s decline apart from US policy risk was the sell-off on telecom stocks, with PLDT sliding by 4.2 percent after announcing disappointing third-quarter results. This dragged the services counter, which fell by 2.83 percent.

The financial, holding firm and property counters were likewise heavily battered, all declining by more than 1 percent. Value turnover for the day amounted to P7.34 billion. There were nearly three times as many decliners (140) as advancers (48).