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By Chino S. Leyco Reporter
THE local currency will further
test its limits in the coming days as the
weakness in Philippine stocks market threatens to pull it down, the
Development Bank of Singapore (DBS) said Tuesday.
In a note, DBS said the peso is
no longer ignoring the weakness in the local bourse after the index,
jittery over rising inflation, fell past its 18-month low at 2773.17
Monday.
“The benchmark Philippine Stock
Exchange [PSE] Index could not keep up with the global equity
recovery that started on March 18. The PSE index topped out at
3052.34, and has been in retreat ever since food inflation and rice
shortages dominated newspaper headlines,” DBS said.
However, the Philippine stock
market showed some spirit Tuesday as share prices closed 0.5 percent
higher, with investors chasing bargains despite concerns about
rising inflation, dealers said.
Philippine Long Distance
Telephone Co. rose 0.6 percent to P2,525. Ayala Corp. gained 2.6
percent at P300. San Miguel A was steady at P44.50. Its B shares
rose 3.3 percent to P47.50.
The composite index added 14.85
points to 2,754.29. It had hit an 18-month low on Monday due to
worries about inflation now running above the central bank’s
target.
The all-share index added 5.10
points to 1,716.46.
But turnover on Tuesday was
leaner at P1.9 billion ($45 million), compared with Monday’s P2.4
billion.
Decliners outnumbered advancers
52 to 35, while 66 stocks were steady. The peso traded at 42.2 to
the dollar.
“The market is enjoying a
technical bounce and there seems to be a bit more confidence now
that foreign funds are coming back after heavy selling last week,”
said Erico Claudio of Unicapital Securities.
But Harry Liu of Summit
Securities said “[t]he long-term direction of the market is not
very clear and volatility is likely to persist in the short term.
Rising inflation remains a drag on sentiment.”
This is exerting selling
pressures on the peso, DBS asserted. “While our forecast remains
on track for US dollar-peso to rise towards 42.50, we are also wary
that the correction could deepen if Philippine equities tumble
farther from here,” it said.
While it is easy to blame the
latest spike in Philippine bond yields on higher US yields, DBS said
it is also evident that the domestic bond market was disappointed as
the central bank did not raise rates to rein in inflation.
“The reluctance to hike rates
also underscored the policy-makers’ growth concerns, which in
turn, could hinder this year’s goal to return to a balanced budget
by slowing revenues and increasing fiscal spending,” the Singapore
bank said.
Unlike last year, plugging the
shortfall through privatization will be more difficult if investor
confidence continues to recede, as implied by the falling PSE index,
it added.
President Gloria Arroyo said for
the first time on Tuesday that the US slowdown and soaring inflation
were likely to hit the Philippines’ bid for a balanced budget this
year.
--With AFP
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