Peso tumbles, stocks drop
Recession fears replace inflation worries
By Doris Dumlao, Elizabeth Sanchez-Lacson
Philippine Daily Inquirer
First Posted 03:01:00 10/07/2008
Filed Under: Economy, Business & Finance
MANILA, Philippines—The peso tumbled Monday to 47.43 to the dollar as global financial markets fretted on whether the $700-billion US bank bailout package would be enough to stave off recession in the world’s biggest economy.
The peso closed near the day’s low of 47.50 to the dollar and shed 0.39 from Friday’s closing rate of 47.04, dragged down by the weak sentiment in Wall Street even after the US enacted a landmark law that would allow the state to buy out soured assets from distressed financial institutions.
Share prices also fell, by 2.6 percent, as investors chose to hold on to cash than get stuck in volatile global markets.
Analysts said fear gripped investors despite US Congress’ approval of a $700-billion bailout plan for troubled American banks and financial institutions hit by the subprime credit crisis.
“The bailout package approval by Congress was already expected. Now investors are not sure if it will be enough. And before the approval of Congress, the US reported weak employment and manufacturing numbers. This confirmed that the bailout was just a stop-gap measure, it won’t halt a great depression,” said Jose Vistan, head of research at AB Capital Securities.
An economic recession in the United States and difficult access to foreign credit by local companies could lead to big earnings downgrades, analysts said.
The central bank’s Deputy Governor Diwa Guinigundo said the peso’s weakness was due to risk aversion across the globe, although the foreign exchange market was among the factors considered by the policymaking Monetary Board, which kept its key interest rates steady given an improving inflation outlook.
Since the start of the year, the peso has lost P6.15 or nearly 13 percent of its value against the dollar.
“The weak sentiment is due to lack of a clear method for bailout,” said Export Bank treasurer Benjo Arcinas. “But I think there are no [out] flows to justify this. It’s pure sentiment, pure positioning by banks.”
Investors are wary that the lingering credit crunch that has caused distress among western financial institutions might push the United States into a recession. As such, concerns over global growth have replaced previous jitters over inflation in Asia.
A US recession, or a prolonged economic contraction, is seen to weigh down on growth prospects elsewhere across the globe, including emerging economies like the Philippines, leading currencies in emerging Asia faltering across the board yesterday, led by the South Korean won and the Indonesian rupiah.
The volume of trading on the currency spot market softened to $690 million Monday from Friday’s $742 million. With editing by INQUIRER.net
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