Peso slides to new low; stocks drop as investors take in Fed, BSP rate hikes

The Philippine peso sank to a new low while stocks approached a key support level after the Bangko Sentral ng Pilipinas (BSP) delivered a 50 basis point rate hike on Thursday, which was widely expected but unlikely to significantly reverse volatile foreign exchange movements.

The peso’s continue erosion to 58.49:$1 on Thursday underscored looming risks. The slide also came a day after the US Federal Reserve announced another large interest rate hike of 0.75 percentage point (ppt).

The benchmark Philippine Stock Exchange Index (PSEi) fell 0.63 percent, or 39.98 points, to 6,301.71 while the broader All Shares index shed 0.86 percent, or 29.28 points, to 3,356.24.

Central banks around the world are turning to aggressive monetary tightening to tame surging inflation while balancing risks to economic growth to avoid a recession.

Jonathan Ravelas, veteran stock analyst and financial strategy consultant at e-Methods for Business Management Corp., said largely external uncertainties threaten the 6,000 support level for the PSEi.

“With inflation yet to peak, there is pressure to go below 6,000. It’s more likely we will see it give way. If you are seeing the peso depreciate toward 60 [against the US dollar], most likely it will follow,” Ravelas told the Inquirer.

A breakdown below 6,000 would see traders target the 5,700 to 5,500 levels for the PSEi, he added.

The local currency traded on Sept. 22 at as weak as 58.50:$1, eventually losing 49 centavos to the US dollar from the previous day’s closing of 58:$1.

“Continued peso weakness, despite the latest 0.50 percentage point policy rate hike of the Bangko Sentral ng Pilipinas could lead to higher import prices and overall inflation, as the peso already depreciated by 14.7 percent since the start of 2022,” said Michael Ricafort, chief economist at the Rizal Commercial Banking Corp.

According to ING Bank, the dollar broke new ground in terms of strength against other currencies following the hawkish move by the American central bank.

“With the Fed set to hike a further 100-125 basis points [one ppt to 1.25 ppt] this year, this all points to an even stronger dollar,” ING Bank said.

Alfred Benjamin “Ian” Garcia, AB Capital Securities Inc. assistant manager, sales and marketing, saw the PSEi’s near-term support at 6,150.

Like Ravelas, he anticipated further downside risks, opening up potential entry levels for investors.

For example, the PSEi at 5,900 gives the index a more favorable earnings ratio, “which is a pretty good level for such a terrible macroeconomic environment.”

Garcia said they favored certain high-dividend stocks such as DMCI Holdings, its subsidiary Semirara Mining and Power Corp. (SCC), and PLDT Inc.

“Power and banking should be insulated from the inflation concerns,” he added. Top picks were SCC, Aboitiz Power Corp. and banking plays BDO Unibank Inc., Bank of the Philippine Islands and Metropolitan Bank & Trust Co.