Reality sets in, peso, stocks resume slide

11/07/2008

It was a short-lived honeymoon between US President-elect Barack Obama and the local markets after most of the world’s bourses plunged yesterday, dragging along the Philippine peso and the shares index, as investors focus on recession fears, traders said.

Share prices closed 3.2 percent lower in line with other regional markets following heavy losses on Wall Street overnight, dealers said. The composite index gave up 64.59 points to 1,941.62, while the all shares index lost 2.6 percent to 1,280.71 with decliners swamping advancers 84-9 and 32 issues unchanged. Turnover reached 2.1 billion shares worth P2.4 billion.

The peso lost 49 centavos to 48.55 per dollar on news of more negative figures on US economy.

The unit’s performance during the day was contrary to how it fared Wednesday when it closed at 48.06, which was an improvement of 35 centavos against Tuesday’s finish on news that Obama won the US presidency.

At the Philippine Dealing System, the unit opened at 48.50, lower than the previous day’s 48.10. The highest trading level for the day stood at 48.15 while weakest was at 48.56. This placed the average at 48.48, weaker than day-ago’s 48.07. Total volume of trade continued to decline at $548.47 million from the previous day’s $775.1 million.

Traders said remittances of overseas Filipinos in time for the holiday season failed to buoy the local currency as the global financial crisis continues. Remittance, which is normally high at the last quarter of the year, is widely expected to boost the peso at the end of the year and give the local unit a respite from depreciation mode as the result of the global financial crunch.

Gomer Tan of Regina Capital Development told Dow Jones Newswires that after the euphoria of Barack Obama’s win in the US presidential election, “a reality check has set in. Economic concerns have returned.”

A deep recession in the US, the Philippines’ leading trading partner, will likely hurt the country’s already sluggish exports, he added.

Tan said the market may continue to decline Friday, with support expected at 1,880-1,900 points and resistance at 2,000 points.

Shortly after trading began in Europe, the London stock market stood down 2.91 percent, Paris tumbled 3.11 percent, Frankfurt shed 2.91 percent and Madrid lost 3.07.

Nordic markets also fell heavily.

“Equities are back in reverse... as traders fail to find any let up in the run of downbeat economic and corporate news,” said CMC Markets dealer Matt Buckland.

Investors in Europe were gearing up for interest-rate decisions from the European Central Bank (ECB) and Bank of England (BoE) yesterday, with both widely expected by economists to slash key lending rates by half a percentage point.

“The ECB and BoE rate verdicts do have the potential to provide some cheer, especially if the cuts end up at the more aggressive end of the spectrum,” said Buckland.

Some economists are forecasting the BoE to reduce its key lending rate by as much as one percent. The BoE decision is due at 1200 GMT with the ECB call 45 minutes later.

European stock markets meanwhile, tumbled early yesterday following sharp falls across Asia and on Wall Street overnight.

Tokyo closed down 6.53 percent, Hong Kong dived 7.1 percent and Seoul shed 7.6 percent on concerns about the state of the global economy, dealers said.

“Now that the (US presidential) event is over, investors are sobering up and looking at the economic gloom,” said Mizuho Investors Securities broker Masatoshi Sato.

US stocks had plunged on Wednesday as investors worried about the global financial crisis and a US recession, a day after Democrat Obama was elected the first American black president in a landslide victory.

The Dow Jones Industrial Average plummeted 5.05 percent on Wednesday and the tech-heavy Nasdaq dropped 5.53 percent, snapping a six-session winning streak.

The Standard & Poor’s 500 index slid 5.27 percent.

The market action wiped out gains from the strongest Election Day rally in US history enjoyed on Tuesday as investors hoped that a new president would bring relief from the global financial crisis. Wall Street was to reopen on Thursday at 1430 GMT. AFP

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