Market facing double whammy: falling peso, fragile stocks
Stocks are seen vulnerable to further sell-offs this week as the weakening of the local currency past the 50:$1 psychological level soured foreign investors’ appetite.
The main-share Philippine Stock Exchange index (PSEi) fell by a total of 167.34 points, or 2.39 percent, last week as it ended on Friday at 6,834.92.
The peso, on the other hand, depreciated by 1.79 percent to close at P50.08 against the US dollar as demand for the greenback increased alongside the recovery in imports.
Local shares would remain weak amid renewed foreign sell-offs, said Manny Cruz, chief strategist at local stock brokerage Papa Securities.
“The weakness of the local currency against the US dollar induced foreign funds to sell local stocks and convert to the US dollar,” Cruz said.
“We are looking at a support at the 6,600 level, which could be a decent level to position in the market given improvements in economic outlook,” he said.
Cruz said the pandemic seemed to be under control now in the Philippines, as indicated by the decline in new COVID-19 infection rates in the National Capital Region.
Elsewhere in the Asia-Pacific region, however, jitters have escalated amid threats from the more contagious Delta variant.
In a July 8 research note, JP Morgan noted that while the pace of vaccination was picking up in emerging markets, the rollout did not seem enough to offset the rates of transmission in some countries. It said the Philippines, Peru, Colombia, South Africa, Thailand and Mexico appeared “most vulnerable” to the Delta variant.
The Philippines was cited to be among the countries that could face pressure to tighten restrictions further.
BDO Unibank chief strategist Jonathan Ravelas said new COVID-19 variants were clouding global growth expectations, thus dampening domestic investor sentiments on the country’s recovery prospects. This caused investors to capitalize on their gains from the previous week’s rally, Ravelas said.
Last week’s close at 6,834.92 highlighted the market’s vulnerability to sell-offs despite the recent high of 7,064.24, Ravelas said.
“Continue to expect the market to range between the 6,700 to 7,000 levels in the near-term. However, a sustained fall below the 6,700 levels could signal that the market could retry the 6,300-6,500 levels and reignite the bears to play,” he said.
At the foreign exchange, a sustained break above the P50.50 levels could next test the P50.70 to P51 levels against the US dollar, Ravelas said.
