Peso movement to guide equity investors this week

Market observers will be monitoring currency movements as stocks mirror the decline of the Philippine peso while central banks around the world continue aggressive monetary tightening to tame inflation.

The benchmark Philippine Stock Exchange Index (PSEi) plunged 4.42 percent to 6,259.54 the past week amid a flurry of interest rate increase announcements, including the Bangko Sentral ng Pilipinas’ (BSP) 50-basis point (bp) hike and the US Federal Reserve’s 75-bp hike.

The Philippine peso continued to slide against the greenback to touch a new low of P58.50 on Friday.

Alfred Benjamin “Ian” Garcia, AB Capital Securities Inc. assistant manager, sales and marketing, said they were watching the peso since the BSP’s 50-bp increase was expected.

Jonathan Ravelas, veteran stock analyst and financial strategy consultant at e-Methods for Business Management Corp., said the PSEi could fall below the 6,000 support should the peso depreciate further.

A breakdown below 6,000 would see traders target the 5,700 to 5,500 levels for the PSEi, said Ravelas, who warned of deteriorating market conditions in early 2022.

April Lynn Tan, chief equity strategist at stockbrokerage house COL Financial Group Inc. said she remained optimistic and that the recent decline was mainly due to expectations on the US Fed’s tightening cycle.

“The accumulated 300-bps rate hike this year will be very painful for the US economy and I won’t be surprised if it suffers from a hard landing, which should lead to a sharp rise in unemployment and a faster drop in inflation,” Tan said.

“Once that happens, the Fed might change its tone. If they just say they will pause, I think the market will already rally because [Philippine] stocks are already very cheap,” she added.

—Miguel R. Camus INQ