PH shares tumble nearly 3% after China index plunges 7%
Philippine shares tumbled nearly 3 percent in nervous Thursday trade, in line with the global market reaction to a 7 percent plunge in China stocks that caused a trading suspension as Chinese authorities weakened the yuan further to a five-year low.
Thursday’s losses around the world mark one of the worst starts to a trading year for decades as nerves were shredded by a perfect storm of weak global growth—particularly in China—a slump in oil prices to more than 11-year lows and geopolitical tensions.
“The market pullback is driven by heightening geopolitical risks and concerns over the Chinese economy,” Michael Angelo Oyson, chief executive officer at BPI Securities Inc., told The Manila Times.
Such fears are exacerbated by concerns over the impact of the Chinese yuan’s weakening on other currencies of emerging markets, Oyson said.
“What is happening is, there is a question of how weak China’s economy will be and the uncertainty in terms of commodities and the currency,” he added.
The Philippine Stock Exchange Index (PSEi) slid 2.86 percent or 195.02 points to close at 6,618.88.
It was the lowest closing level for the index since April 28, 2014, when the PSEi ended at at 6,604.35. Thursday’s trade also marks the biggest one-day loss for the index since August 24 last year, when the index took a 6.7 percent dive.
Waning growth at the core of fears
Asia picked up from another sell-off on Wall Street, where dealers were spooked by a World Bank report cutting its global growth forecasts again, citing weakness in emerging markets, particularly China.
In a painful echo of the summer rout that wiped trillions of dollars off valuations, mainland investors sold up on fears about the world’s number two economy, a key driver of global growth.
China’s benchmark Shanghai Composite Index sank 7.3 percent to 3,115.89 points before the new “circuit breakers” suspended trading for the day. The smaller Shenzhen Composite Index slumped 8.3 percent to 1,99588.
Regulators in China called an end to trade within just 30 minutes of opening after the central bank weakened the value of its yuan currency by 0.51 percent against the dollar.
The drop was the biggest since August when the value was cut by 5 percent in a week—sparking weeks of global market turmoil over worries Beijing did not have a handle on its economic crisis.
The yuan is now at its weakest in five years.
“The Chinese yuan is smack bang at the heart of concerns. For risk assets to stabilize and sentiment to turn around, we are going to need a stable or even positive move in the Chinese currency,” Chris Weston, chief market strategist in Melbourne at IG Ltd, told clients, according to Bloomberg News.
Trading was halted just before 10 a.m. (2 a.m. local time) as a “circuit breaker” kicked in after the benchmark Shanghai index slumped 7 percent and the Shenzhen composite index, which tracks stocks on China’s second exchange, tumbled 8.2 percent.
The stop—activated when markets fall more than 7 percent—was also triggered on Monday, its first day of operation.
It is based on the CSI 300 index, which tracks the largest 300 stocks on the two exchanges.
Authorities unveiled the circuit breaker as part of efforts to reduce volatility on China’s volatile exchanges following the summer sell-off.
“The use of the circuit breaker is the main reason for the falls as investors panicked after seeing it being triggered on Monday,” Phillip Securities’ analyst Chen Xingyu told Agence France-Presse.
Concerns over China’s economy—which is growing at its slowest pace in a quarter century—have been exacerbated by worries about the looming expiry Friday of a ban on selling by certain investors.
But on Thursday the restrictions, also brought in during the summer, were extended indefinitely with some tweaks, including a requirement to disclose planned sales 15 trading days in advance.
Losses around the world
The carnage in China has seeped through to global markets and Asian trading floors continued to see red. By the end Hong Kong slumped more than 3 percent and Tokyo shed 2.2 percent.
Sydney—where several firms with trade links to China are listed—lost 2.2 percent and Seoul was 1.1 percent off. There were also substantial losses in Singapore, Taipei, Bangkok and Manila.
That followed more losses across US and European bourses.
In early trade Thursday in Paris, the benchmark index slumped 3.0 percent, Frankfurt slid 2.5 percent and London retreated 1.9 percent.
Manila now in a bear market
In Manila, the broader all shares index fell 99.07 points to 3,814.48, a 2.53 percent drop.
Losers outnumbered gainers 162 to 22, with 26 stocks closing unchanged.
Trading turnover reached P5.415 billion.
Jose Mari Lacson, research head of Campos Lanuza and Co., Inc said that stocks are in a bear market.
“The market is in successive persistent successive declines and we will continue to be in a bear market,” he said.
“The matter that needs to be determined is the duration of the bear market,” he added.
Lacson said that some market players are expecting the bear market to last six months.
However, he said that given foreign funds’ exposure to the market, it is more likely that the current market correction may last for the entire year.
“Foreign funds need to exit. The reason why we are falling this much is they are rushing toward the exit,” Lacson said, adding that foreign funds are trying to shield their Philippine gains from the impact of the depreciating yuan.
“If the exit is orderly, then foreigners will have to take a long time to exit,” he added.
Most actively traded Ayala Land, Inc. was down P0.85 at P32.25. Bank of the Philippine Island lost P0.30 to P81.70. SM Prime Holdings Inc. dropped P0.70 to P20.50. Ayala Corp. fell P23 to P709. Universal Robina Corp. fell P4 to P181. Megaworld Corp. shed P0.23 to P3.94. Philippine Long Distance Telephone Co. plummeted P48 to P1,982 while JG Summit Holdings Inc. retreated P3.40 to P66.60.
Oil heads toward $32
Shares of energy firms were among the worst hit after Brent oil prices fell 6 percent to their lowest finish since July 2004. The US benchmark West Texas Intermediate sank 5.6 percent to hit its weakest close since December 2008.
On Thursday in Asia both contracts fell another 5 percent toward $32, with China’s weakness also playing a key role.
The declines came after the US Department of Energy said stockpiles of gasoline and distillates, including diesel and heating fuel, had surged. The figures fed worries about a global supply glut and weak demand that has sent prices slumping more than 60 percent since mid-2014.
On currency markets, a rush to safe investments hit emerging currencies, while the dollar fell below 118.00 yen for the first time since August.
WITH A REPORT FROM AFP