PSE stocks suffer worst 1-day loss since 2008, what’s next?



Philippine stocks experienced a sharp one-day drop yesterday, recording the worst stock market performance since 2008, during the collapse of investment banking giant Lehman Brothers.

The Philippine Stock Exchange index (PSEi) registered a huge 6.75% loss yesterday (June 13, 2013), closing at 6,114.08 — a steep decline not seen since October 27, 2008 when local stocks dropped a whopping 12.27% as an aftermath of the Chapter 11 bankruptcy filing of Lehman Brothers in September 2008.

Net Foreign Selling

Yesterday’s decline was primarily attributed to the pullout of foreign funds, with Net foreign selling reaching PHP1.65 billion. Foreign investors are said to be taking profit and leaving Philippine markets due to fears that the U.S. Federal Reserve will discontinue its quantitative easing (QE3) or bond-buying program that infused liquidity into the market. Local stocks are also said to be relatively expensive at 22 times Price-Earnings ratio, turning off investors.

The Philippines was not the only market that suffered severe market reversal yesterday. On June 13, The Tokyo Stock Exchange also posted a huge 1-day loss of 6.35%. The Stock Exchange of Thailand dropped 2.1%, while Indonesia’s stock market sank 1.9%.

Stock prices going down

In the Philippines, all PSE stock sectors were in the red at yesterday’s close, led by the Property sector which lost 7.30%; Holding Firms sector, which bled 6.64%; and Services sector, which dropped 6.40%.

Worst PSE index performers yesterday were San Miguel Corp. (SMC), down 11.58%; Bloomberry Resorts (BLOOM), down 9.86%; Alliance Global (AGI), down 8.86%; Jollibee Foods Corp. (JFC), down 8.77%; and Aboitiz Equity Ventures (AEV), down 8.65%.

In just one month, Philippine stocks already shed more than 1,289 points from its high of 7,403.65 on May 15. However, year-to-date (that is, from the start of the year until June 13), the PSEi is still up 5.18%.

Market Outlook: Stocks to continue going down?

In the midst of this scary market bloodbath, investors ask: Where is the market headed?

Here are some opinions and recommendations by the Bangko Sentral ng Pilipinas (BSP) and analysts from the country’s top brokers.

BSP Governor Amando Tetangco Jr. (from Philippine Daily Inquirer, June 13): “I expect the pullout of foreign funds to be short-lived because the country’s macroeconomic fundamentals remained strong and attractive to investors.”

BSP Deputy Governor Diwa Guinigundo (from Philippine Daily Inquirer, June 13): “What we saw was just a healthy correction in the equities market. People were thinking that the price-earnings ratio was becoming high, although there are fundamental basis supporting the expensive equities given the strength of the Philippine economy.”

AB Capital Securities Inc. analyst Jose Vistan (from Interaksyon.com, June 13): “The market is not crashing. It is normalizing. When normalizing, the average PE of the market will be around 14.6 market. The last time I checked it was at 16 times so there’s a little more room on the downside.”

Campos Lanuza & Co. research head Jose Mari Lacson (from Philippine Daily Inquirer, June 13): The market has been wiping out the premium paid for by investors for all the excess liquidity arising from the quantitative easing of the US Federal Reserve. I know it looks really bad. I’ve never seen it that bad, but in terms of percentage, we’ve seen worse. Neither should we be entirely concerned because there’s no change in the country’s macroeconomic fundamentals, with a 7.8-percent growth rate still the best in the region and we have record-high GIR (gross international reserves) level.

First Grade Finance Inc. managing director Astro del Castillo (from Interaksyon.com, June 13): “It’s not confined domestically. We remain hostage to foreign selling because of developments overseas. The selloff is a concern but the real concern is where is the bottom? I think it’s not too far anymore.”

COL Financial Group research head April Lee-Tan  (from Interaksyon.com, June 13): “Nothing has changed fundamentally. We know where investors are attributing the selloff: concerns that the Fed will scale back its bond buying. It’s externally driven in that respect so what we’re seeing today is an opportunity to buy. Before we end the bull cycle, we’ll see higher highs. It’s still difficult to say if we’ll return this year to record levels, but we think the bull cycle is still intact.”

Accord Capital Securities analyst Jun Calaycay: “At this point, investors may be torn as to where to get their guidance from. Technical suggestions have generally been disregarded on the downside as much as it generally was on the upside. Support levels have held for a day or two but the onslaught of the bears in succeeding days have violated these line. Fundamental measures, on the other hand still posit the market remains on the expensive side, relative to other markets in the region. Investors may consider staying liquid and watch how things unfold before making any commitments to equities.”

ATR Kim Eng Asset Management Investment Director Jun Tarrobago (from ABS-CBN News Channel interview, June 13, 2013): We think fundamentals remain strong and for long-term investors it’s is a good opportunity to improve their position so we see this as a buying opportunity. It’s gonna be difficult if you try to find the bottom. Investors now are best served having a long-term view of the markets. You have a backdrop of low interest rates, rising economy, strong earnings growth. The long-term picture is very positive. I don’t recommend trying to get the bottom. I wouldn’t be surprised if the market starts stabilizing, or even show a rebound of sorts.

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