The Philippine stock market can’t catch a break.
Its benchmark index slumped 1.7 percent yesterday, closing below a key level of 7,300 for the first time in 10 weeks for several reasons: worse-than-expected damage from Typhoon Mangkhut, concerns surrounding an elevated inflation outlook and expectations the U.S.-China trade war will escalate. The peso fell as much as 0.1 percent to 54.15 against the dollar before paring losses.
“There is no positive news at the moment except for the good remittance number,” says Helen Oleta, head of trading at Rizal Commercial Banking Corp. in Manila. “Inflation expectations remain high, the trade war could intensify while the exchange remains under pressure that many are asking where the peso will be,” she said.
Damage caused by Typhoon Mangkhut to farms and infrastructure has reached 14.27 billion pesos (USD79 million), the agriculture department said Monday. About two thirds of the damage, which exceeds an initial forecast of 11 billion pesos, is due to losses in rice, one of key drivers of inflation that’s at a nine-year high.
The benchmark PSEi could fall to 7,100 near term and and may re-test the 17-month low touched in June if inflation shows no sign of easing and foreign investors continue to sell the nation’s equities, according to Oleta. Given the weakness in equities, some investors are shifting to shorter-term dated-fixed income securities that offer better value given the weakness in stocks.
Philippine stocks have dropped 15 percent this year, making the benchmark the second worst major stock market in Asia and among the worst globally. Overseas investors have withdrawn $1.51 billion this year, surpassing the record $1.19 billion outflow for all of 2015.
“The typhoon has erased what the government has done to bring down inflation so the expectation is we will see more pressure,” Oleta said. “The question now is what would support the market at this time. There isn’t enough volume.” Bloomberg