Stock Market Drop

PHILIPPINES - In Brief 22 Aug 2013 by Romeo Bernardo

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The Philippine Stock Exchange index dropped by 6 pc today, after the market closed for three days on account of flooding and a holiday, playing catch down with peers in the region. Jakarta, KL and Thailand indexes suffered cumulative declines of 8.8 pc, 3.8 pc and 6.8 pc over four days since the Fed signaled cuts in its stimulus program. The peso likewise weakened to P44.17 to the dollar, a two month low, recovering somewhat after it dropped to a two year low earlier in the day. This is on the back of mostly foreign selling, with property stocks and holding companies declining the most. The Central Bank Governor assuaged concerns in a Bloomberg interview, suggesting the market decline was a result of overreaction and herd mentality. The Philippines is somewhat differentiated from its peers by having a current account surplus. This was equivalent to 2.8 pc of GDP last year. We forecast this to be only slightly lower this year, continuing a decade long structural surplus underpinned by healthy and resilient growth in remittances and BPO earnings. It is unclear though if this is enough to withstand foreign selling pressure, from uncompleted sell orders in the course of today's trade, as well as continuing uncertainty on pace if not direction of US Fed policy. Widely expected favorable second quarter growth numbers, for release by end month, could help reinforce differentiation and cushion sell side pressure. We are forecasting 7 pc GDP growth for the second quarter, and 7.2 pc for the entire year, tapering to 6.2 in 2014.