Investors brace for UK vote aftermath

INVESTORS are bracing for wild swings in the local stock market this week as Great Britain’s decision to break away from the European Union—the so-called Brexit—heightened global risk aversion.

On Friday, the Philippine Stock Exchange index hit a high of 7,813.58 in intra-day trade but slid to 7,629.72 at close as the Brexit votes prevailed, surprising global markets. The PSEi thus ended the week flat from the previous week’s finish of 7,622.07.

“We expect the market to remain very turbulent as global markets recalibrate the impact of the Brexit. Contagion remains a key risk and central banks globally will need to calm markets,” BPI Securities president Michaelangelo Oyson said.

“The negative impact of the contagion cannot be underestimated as we have seen during the taper tantrum, the risk of the ‘Grexit’ (Greece exit from the EU), the renminbi rebalancing and the 2008 global financial crisis,” he added.

Meanwhile, Philippine Stock Exchange president Hans Sicat said the outcome of the referendum “had a negative impact on various asset classes and currencies including our own market. This was the foreseen reaction in a Brexit case which may prevail for the next few days as markets settle. Medium term, however, we think that the Philippine market will not be adversely affected as it is supported by the country’s solid economic fundamentals and the inherent strength of the local financial market.”

The peso may also continue to weaken against the US dollar as risk aversion intensifies globally, Oyson said.

“The Brexit is just round one. A potential ‘Armagexit’ by other EU countries remain a major risk to markets. I expect central banks to remain accommodative to support markets and stem market panic. Volatility will remain heightened,” Oyson said.

However, Oyson said there would be interesting opportunities for local investors to buy high-quality companies at lower prices down the road.

“A mitigating factor for the Philippines is the honeymoon effect arising from the strong public mandate given to the Duterte administration to institute reforms,” he said.

President-elect Rodrigo Duterte is set to assume office on July 1.

Jonathan Ravelas, chief strategist at Banco de Oro Unibank, said the market’s recent test at the 7,800 level signaled its inability to sustain itself above this level.

“Market players may re-enter the market near the 7,500 levels. However, should 7,500 levels give way, it may lead to a much larger correction towards the 7,000-7,350 levels in the near-term,” Ravelas said.

Luis Gerardo Limlingan, managing director at Regina Capital Development, said the PSEi may face sharp declines this week, with limited prospects for recovery as prices continued to test the 7,470-7,400 support levels. Doris Dumlao-Abadilla