Singapore-based investment bank DBS expects the Philippine stock market to continue to take a beating throughout the rest of the year, as more equity investments will likely be pulled out given an unfavorable economic climate.

From January to July, $476 billion worth of equity investments was withdrawn from the country as investors reacted to high inflation and the impact of a global slowdown on the domestic economy, DBS noted.

The amount was equivalent to 16 percent of the net inflows of equity investments from 2000 to 2007, DBS said. The outflows so far led to a 30-percent drop in the Philippine Stock Exchange Index this year.

“There clearly is the risk that equity outflows will continue,” which in turn may exert more pressure on the peso, said the research group of DBS in its latest paper, titled, “Interest Rate Outlook and Strategy.”

DBS expects the peso to depreciate to 47 against the US dollar before the year ends as a consequence of sell-offs in the stock market.

Although remittances from overseas Filipino workers would remain strong, DBS said this would not be enough to offset the adverse impact of investment outflows on the peso.

Stock market prices tend to dip in an environment of high inflation and slower growth. This is because the accelerated increase in prices of goods and services encourage consumers to reduce spending on non-basic items. In turn, corporate profits either drop or post slower growth, leading to lower valuation of stocks.

DBS also said yields on treasury bonds would rise in the coming months as investors take into account a persistently high inflation, which eats up yields from fixed-income securities investments, and likelihood that the central bank would continue to increase its key policy rates.

Higher interest rates charged by the central bank on loans by banks tend to encourage the latter to seek higher returns from their investments in government securities.

“We think that Philippine government bonds, despite the sell-off since January, are still overpriced,” DBS said.

The National Statistics Office earlier reported that year-on-year inflation accelerated to 12.2 percent in July, the fastest rate in 17 years. This was blamed on sharp increase in food prices brought about by high cost of fuel in the past months, weather-related problems that disrupted supply and an increase in demand for rice.

But according to government economic managers, the Philippines is not the only one suffering from high inflation, explaining that this has become a global phenomenon. Unfavorable economic conditions seen in the country this year were largely due to external factors, they said.

High inflation is expected to slow down the country’s economic growth to 5.7-6.6 percent this year—a decline from last year’s robust growth of 7.2 percent.

The central bank, however, said double-digit inflation would only last until the first quarter of 2009. Also, consumer prices will begin to stabilize in the second quarter, when global supply of fuel catches up with demand as additional production capacities are tapped, the central bank added.

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