PH stock market slips into bear territory

AP file Photo/Aaron Favila

THE LOCAL stock market slipped into the much-dreaded bear territory Monday as escalating concerns on China’s sagging economy and weakening currency soured global investor sentiment.

The Philippine Stock Exchange index (PSEi) shed 287.17 points, or 4.37 percent, to close at a two-year low of 6,288.26.

It was the barometer’s steepest fall since the so-called “Black Monday” on Aug. 24, 2015, when the PSEi shed 6.7 percent as similar concerns on China triggered a global stock market meltdown.

For the PSEi, Monday’s closing marked the lowest finish since Feb. 18, 2014, when it ended at 6,193.97.

The day’s bloodbath arising from net foreign selling amounting to P1.17 billion saw a cumulative decline of 22 percent from the PSEi’s peak closing of 8,127.48 on April 10, 2015.

When a stock market falls by 20 percent from the peak and remains below the threshold for at least three months, it is deemed to have technically entered the bearish cycle or a period of continuing stock price declines.

Across the region, there was widespread selling of stocks, led by the Shanghai stock index that slid 5.33 percent.

PH 2nd most battered

The Philippine stock market was the second most battered in the region after China’s, while the stock barometers in Hong Kong (-2.46 percent) and Taiwan (-1.34 percent) were also heavily battered.

“Risk sentiment continues to weaken even as recovery in US employment market remains robust. With investors confused about the intent of Chinese policymakers again, the price action in global assets is turning out to be a replay of August-September last year. Hopes of coordinated action from policymakers may be disappointed,” Citigroup said in a research note on Monday.

Market confusion

China’s central bank confounded analysts by guiding the yuan’s midpoint rate sharply stronger, a move that might calm concerns about a competitive devaluation but only added to market confusion as to Beijing’s ultimate intent on its currency policy.

The move was an apparent reversal of the midpoint’s recent weakening trend which included the biggest one-day drop in the guidance rate in five months on Jan. 7.

The move of China’s central bank did not ease concerns on competitive devaluation or currency wars.

The “beggar-thy-neighbor,” or currency wars, refer to a trading policy that utilizes currency devaluations and protective barriers to alleviate economic difficulties at the expense of other countries.

The fear is that a number of Asian countries would tolerate if not engineer a weakening of their own local currencies to cope with shock waves from China.

Citigroup said positioning in emerging market Asian currencies was “unusually clean” to start the year, adding that “bearish positions may have room to grow.”

Developments overseas

“Negative developments overseas continue to affect the performance of global equities, including the Philippine market. Money managers, including foreign funds, are assessing and rebalancing their exposure to emerging markets following the sell-off,” said PSE president Hans Sicat.

“The situation though does not change what is happening in the real economy, with the growth drivers seemingly intact. The demographic dividends are all the more pronounced given strong BPO (business process outsourcing) performance, robust consumer sector, lower inflation and growth in infrastructure.

Bucking fundamentals

“We hope that the resilience and sound fundamentals of the local economy will be apparent in the medium term and can help temper the volatility over the coming periods,” Sicat said.

Veteran broker Joseph Roxas, president of Eagle Equities Inc., said it was “not conclusive” that the PSEi had entered the bear market despite the steep declines that led to a free fall of over 20-percent free fall from the peak.

Like in previous years, the local stock market could promptly bounce back from the bear territory, he said.

“This is really external,” Roxas said. “Are we in recession? No. Is China in recession? No. Even the presidential elections should be positive, maybe not right away, but it is positive. I don’t see any reason why we should be in a bear market.”

From 2009 to 2014, the PSEi has more than tripled in value before slightly easing last year.

This year, consensus forecasts point to a potential growth in Philippine gross domestic product (GDP) of 5.8 percent, in turn seen supporting a resumption of the stock market run-up.

“As a matter of fact, a (currency) devaluation in China should be good for us because our products don’t compete with theirs. We should even stand out in the basket, as the peso value of business process outsourcing and remittances will go up,” Roxas said.

All in the red

At the local market, all counters ended in the red, led by the cyclical property counter, which slumped by 6.31 percent.

The industrial and mining/oil counters faltered by over 4 percent while the financial, holding firm and services counters declined by over 3 percent.

Property shares dumped

Value turnover at the local market was P7.23 billion.

There were around eight decliners for every advancer at the local market.

Investors dumped shares of property firm Megaworld Corp. which fell by 9.28 percent, while ICTSI, one of the country’s global companies, saw its share price fall by 8.95 percent.

Metrobank shares fell by 7.26 percent, while SM Prime and RLC both declined by over 6 percent.

Ayala Land Inc., Ayala Corp. and Jollibee Foods Corp. slumped by over 5 percent while Banco de Oro, SM Investments and Globe Telecom faltered by over 4 percent.

GT Capital, Universal Robina Corp. and Aboitiz Equity Ventures all slid by over 3 percent while JG Summit and Metro Pacific both declined by over 2 percent.

Support levels

After the breakdown of the 6,300 level, local stock brokerage DA Market Securities said 6,000 and 5,700 were key support levels for the bull run. Only a break above 7,300 and 7,200 major resistance levels would challenge the range and downtrend, the brokerage said.

DA Market said its market outlook for the short term was “cautious” while it was “cautiously optimistic” for the medium term. On a long-term basis, it said it was still “positive” on the local market.

The base case scenario for DA Market is that the PSEi will hit 7,250 to 7,600 this year and that investors will be willing to pay 18.9 times the amount of money they will likely make.

But the brokerage noted that the Philippine growth story remained intact. “Considering that sentiment is currently driving market movement, more volatility is expected and thus the investor would do well to wait for golden opportunities,” the brokerage said.