PSEi bull run could cause pain as it contributes to peso rise

by Jennifer A. Ng, BusinessMirror

Posted at Jan 09 2013 09:39 AM | Updated as of Jan 09 2013 05:39 PM

MANILA, Philippines - The bull run of the Philippine Stock Exchange index (PSEi) may be an indicator of “sustained investor confidence” in the country but an exporters’ group and an economist issued a warning that it could hurt a number of economic sectors as the record-setting spree contributes to appreciation of the peso.

Sergio Ortiz-Luis Jr., president of the Philippine Exporters Confederation Inc. (Philexport), and University of the Philippines economist Benjamin Diokno said on Tuesday the strong peso is already hurting business-process outsourcing (BPO) firms, exporters and overseas Filipino workers (OFWs).

“The rise in the [PSEi] is the result of the unmitigated entry of ‘hot money’ [portfolio investments]. It is a short-term gain with adverse short-term and long-term consequences once the market corrects,” Diokno said.

On Tuesday the PSEi hit its fifth all-time high at 6,048.90 just over a week into 2013. The peso, meanwhile, closed at P40.85 to the dollar.

According to Ortiz-Luis, the strengthening of the peso is forcing exporters to put their expansion plans for the year on hold or close shop altogether.

“Exporters have already stopped taking orders because they are just losing money,” he said in a telephone interview.

Ortiz-Luis noted that local exporters began encountering problems when the peso traded at P42.50 against the dollar. Revenues of the services sector, he said, may have already been cut when the peso-dollar exchange rate touched the P41 mark.

Also, the purchasing power of the families of OFWs has been reduced as they get fewer pesos for the dollars sent by their relatives from abroad.

Diokno urged monetary authorities to seriously consider options for mitigating the inflow of “hot money.”

“Government authorities should be more pro-active and effective in discouraging the entry of ‘hit-and-run money.’ This is to avoid the appreciation of the peso [that] leads to lower exports and higher unemployment and deeper misery for families of the [OFWs],” he said.

Ortiz-Luis said the government must decide on the course of action it would take to cushion ill-effects of the stronger peso on economic sectors affected by it.

“The government has 1,001 ways to mitigate [the consequences of the peso appreciation]. But it must make a decision on what it really wants to do,” he added.

Ortiz-Luis and Diokno said the Philippines lacks regulations governing foreign capital inflows.

Government authorities earlier warned that controls on foreign capital inflows could scare off foreign investors.

Malacañang disagreed with Diokno’s view that records set by the PSEi spelled only short-term gain for the country, saying that the highs mirrored “sustained investor confidence” in the country.

“The strong performance of the [PSEi] is reflective of [such trust] in the Philippines,” according to Palace Deputy Spokesman Abigail Valte.

She made the statement after the PSEi broke the 6,000-point mark and closed at an all-time high of 6,044.91 points on Monday, the fourth day of trading this year, for a gain of 73.46 points or 1.23 percent. This level eclipsed the record close posted on January 4 at 5,971.45.

Valte said that these record-breaking advances are an indicator of the bullishness and vibrancy of the Philippine economy.

“The strong performance of the PSEi is a validation of the Aquino administration’s bold reforms and tireless commitment to good governance that has resulted in growth,” she added.

Tuesday’s performance of the PSEi saw thin trade volume.

But the broader all-shares index also closed higher by 1.94 points to 3,813.65 points.

The financials sector was almost flat at 1,576.53 points, down by less than half a point, while the industrial index increased by 44.62 points to 9,148.60 points. Both holding firms and mining and oil indices were up but the services and property sectors were slightly down.

Total volume of trade was at 2.47 billion shares valued at P7.47 billion. Gainers led losers at 85 to 78, while 46 shares were unchanged.

Telecom giant Philippine Long Distance Telephone Co. (PLDT) closed lower by P16 to P2,646. Its minority shareholder Lazard Asset Management said on Monday that it might pull out its investments if the Aquino administration changes its policies on foreign-ownership limit.

Other active shares were Metropolitan Bank and Trust Corp. that were unchanged at P103.40 per share and Megaworld Corp., which were slightly down to P3.16.

SM Investments Corp. was up by P16 to P939 per share after the company earlier disclosed that it had signed a joint venture with the Waltermart Group, a company owned by the Lim family that also operates a chain of community malls, supermarkets and appliance centers.

BDO Unibank Inc., the country’s largest lender, was also up to P75.15, while Alliance Global Group Inc. also increased to P17.54 per share.

Top gainers were Philex Petroleum Corp., Maybank ATR Kim Eng Financial Corp., Benguet Corp B, Vivant Corp. and Nickel Asia Corp. Top losers were Philippine Racing Club Inc., Euro-med Laboratories Philippines Inc., Federal Resources Investment Group Inc., ATN Holdings Inc. B and MRC Allied Industries Inc.