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By Likha Cuevas-Miel, Reporter
The local stock market has been
declining since the start of the year as the global financial crisis
deepened. The world saw the collapse of Bear Stearns early this year
that sent shockwaves around the world, causing stock markets all
around to tumble.
Because of the extreme volatility
in the markets, several Philippine companies opted to push back
their initial public offering and other fund-raising activities.
Only Pepsi-Cola Products Philippines Inc. (PCPPI) and San Miguel
Beer Inc. braved the hostile environment and sold their shares for
the first time to the public.
In July, oil prices spiked in the
world market, pushing inflation rate up to double-digits in the
following months. Soaring oil prices and rising food costs have
eaten into the profit margins of companies, thus curtailing any
aggressive expansion plans. These worries, on top of a worsening
financial crisis, sent the market into a tailspin.
In the following months, several
financial institutions in the US have declared bankruptcy or were
merged with others. Its direct effect reached local shores when
Philippine American Life and General Insurance Co. (Philamlife), the
local unit of troubled American International Group, announced in
October that it would be sold by its parent. Big names like the
Ayala Group and the SM group have lined up to bid for the hugely
profitable Philamlife.
Meanwhile, some local banks have
declared that they had exposures in failed Lehman Brothers and other
investments that have plunged, thus prompting them to make
provisions for their paper losses, dragging their earnings down.
Massive flight of foreign
money
Also in October, the stock market
experienced its worst fall in a single day when the Philippine Stock
Exchange index (PSEi)—the benchmark of share price movements of
listed firms—plunged by 12.3 percent or 239.66 points to 1,713.83
as funds fled on worries that the world is on a brink of a global
recession. Trading was halted for 15 minutes to prevent the PSEi
from sliding down further. This marked the biggest drop since the
Asian financial crisis of 1997.
For the past 11 months,
foreigners have been dumping shares of local companies, more than
half of the amount they were buying a year ago as risk aversion
lingers, PSE data showed. As of November 27 this year, net foreign
selling amounted to P39.1 billion from a net foreign buying of
P62.97 billion as of November 27, 2007.
The last time the PSE recorded
net foreign selling was in 2003 when offshore investors sold
P3.8-billion worth of stocks.
Despite the massive redemption of
foreign funds, the PSE fared better than its neighbors as it ranked
number four out of 15 other bourses in the region as of October this
year. Its composite index dropped 46.63 percent to 1,932.91
year-on-year while Malaysia’s KL composite index, which currently
ranks number one in terms of performance, fell by 40.74 percent.
This was followed by Japan’s
Topix index, Korea’s KOSPI and Japan’s Nikkei 225, which dropped
by 44.62 percent, 45.72 percent and 46.35 percent, respectively. The
worst performing stock market was Vietnam with the VN index logging
in a year-on-year plunge of 66.37 percent as of last month.
The Philippine equities market
may be out of the bear territory for next year but share prices in
the composite index will be dragged down by the banking and property
sectors. The next six months will be tough, analysts told The Times.
Michael Manuel, Sun Life chief
investment officer, said that the local stock market may have
suffered a 40-percent drop in value but it does not mean that
companies are spiraling down. For the first 10 months his year,
earnings of listed companies, excluding banks, went up by 10 percent
year-on-year. With banks included, earnings of listed companies only
inched up by 1 percent.
This year, all share prices
across all sectors went down on growing risk aversion as investors
redeemed their holdings to have cash. The local financial
institutions and mining companies suffered the most among Philippine
listed firms.
Murky 2009
By next year, Manuel said banks
would still remain one of the sectors that will drag down the local
bourse together with real-estate firms. The global financial crisis
and slowing economy is seen to threaten the earnings of property
firms as families—especially overseas Filipino workers’ (OFW)
families—prioritize spending on basic goods.
With that, the Sun Life executive
said consumer, telecommunications, power and energy stocks would
remain resilient. Manuel said there would be no collapse in earnings
next year despite the bleak picture the current financial turmoil is
painting today. This is because people will still be spending,
thanks to the continuous inflow of dollars from loved ones abroad.
Jonathan Ravelas, BDO Unibank
vice president of treasury group-market research, agreed that
consumer spending—which will still remain stable—would pull up
the local equities market during the downturn. He said it is a good
bet to invest in companies that derive revenues from OFW money.
“For every P3 spent [in the
country], P1 comes from OFWs,” he said in a briefing. The critical
mass of OFWs, almost 40 percent of the country’s total labor
force, will continue to prop up the economy.
This will bode well for consumer
firms while power and infrastructure companies will also be
attractive as the government promised more pump-priming next year to
keep the economy from slipping.
On the other hand, export- and
tourism-oriented firms, property and mining companies will have a
harder time next year. Ravelas said exports will be softer due to
weakened demand while tourism, dependent on discretionary
expenditure, will be shaved off from people’s budgets.
Property firms will see slower
growth, as home purchases will temporarily take a back seat in favor
of basic necessities. One bright spot for the real-estate industry
is that Filipinos typically do not default on their payments for
houses.
Market to recover after six
months
Manuel of Sun Life said the bear
market is probably over “but the bull has not started” as the
volatility in equities will linger for the whole of next year
“because the confidence of people has been shattered.”
Despite massive redemption of
holdings by foreign funds and wide risk aversion this year, an
improvement is seen for 2009 albeit at a cautious pace as
corrections and increased volatilities make things murky for
short-term planning.
BDO’s Ravelas said risk
aversion would wane; therefore investors will start putting their
money back in the market. This is also accompanied by easing of
commodity prices with oil moving sideways for 2009.
Another thing that will fuel the
economic activity is the anticipated election spending by the second
half next year.
For the meantime, companies are
on a “wait-and-see” mode and would rather stand on the sidelines
until the smoke clears. Expansion plans are still in the offing but
timing these are proving to be difficult. Those with cash can grab
opportunities and acquire good firms as values of assets have gone
down. But they will not be rash and take every opportunity that
comes their way.
Everyone will also be taking
their cue from Wall Street, where the contagion started.
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