Only 22 issues managed to advance while there were 132 losers and 33 unchanged. Value of the day’s trades was a hefty P6.9 billion with foreign investors as net sellers at P1.6 billion.
At the peso-dollar market, the spillover of the downgrade saw the local currency opening slightly stronger by three centavos to P42.55 from last Friday’s close of P42.58 to a dollar. Trading was a bit brisk with increase demand pulling down the value of the peso to an intra-day low of P42.67 before appreciating to an intra-day high of P42.44 and closing at a rate of P42.50.
But at the end of the trading day, the peso rallied by seven centavos to a weighted average rate of P42.535 from P42.611 to a dollar last Friday. Total dollars that changed hands reached some $1.038 billion.
The unexpected dollar inflow from commercial client rescued the peso from depreciating any further, currency dealers said. “The depreciation was nipped in the bud with the dollar inflow. Otherwise, the peso would have depreciated a bit because of the demand,” a Manila-based foreign currency trader said.
Speaking before the Senate Finance Committee hearing, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the cut in the US credit rating may trigger risk aversion and lead to short-term capital outflows from emerging markets, including the Philippines.
In a rare instance, Tetangco almost sided with currency dealers that the peso may weaken because of the downgrade and funds may move to safe haven destinations such as the Japanese yen and the Swiss franc.
“If this happens, we can expect a weakening of the peso against the US dollar,” Tetangco said, adding that “once the market has digested all this news, they’ll probably realize emerging market economies are resilient and as a result we might see more capital inflows and there could be appreciation pressures on the peso.”
Tetangco and the rest of the Aquino government’s top economic managers admitted that the uncertainty in the local financial market is inevitable as a fall out from the US developments.
The economic team, however, was also caught unprepared Monday after they failed to give initial estimates about the impact of the US debt situation on the Philippines macroeconomic assumptions at the Senate Finance Committee chaired by Franklin Drilon.
Tetangco said it would be “too early” to go back to the drawing board and revise the macroeconomic assumptions.
“It’s still too early to tell because the US downgrade just happened last Saturday. We still have to study this recent development first. All macroeconomic assumptions will be kept, for now,” said Tetangco.
Finance Secretary Cesar V. Purisima, on the other hand, explained that it will be difficult to speculate on the effects of the development on the government’s economic targets.
Purisima assured that the
Philippine government in a good position and “I don’t think we should worry as long as we focus on our fundamentals.”
“I can appreciate that they could not make an accurate assessment now but they agreed that oin two months time they can brief us if there is a need to revise our budget assessments and our targets for GDP (gross domestic product) growth,’’ said Drilon.
The senator agreed to a two-month assessment period by the economic managers inorder to get the frull picture of the fall out. ‘’There we must be very careful about the assessment that our economic managers are going to make on this. This has an effect on our employment and underemployment, ‘’ he said.
On the other hand, Economic Planning Secretary Cayetano W. Paderanga said effects on the Philippines may be minimal, with early estimates showing the effect would just be one-tenth of one percent of the domestic economy.
But, Purisima conceded that the volatility in the financial market from a growth standpoint could dampen the country’s growth prospects, but it could be easily corrected as government’s economic agenda and fiscal sustainability program will help to weather the situation.
“Right now the Philippines has improved credit rating, we’ve been upgraded four times. That’s a reflection of our macroeconomic stability as well as the fiscal sustainability program. We are confident that we will be able to weather this turmoil,” Purisima said.
Market players, meanwhile, said trading will to be extremely volatile, noting that investors will be taking their cue from the performance of regional markets.
First Grade managing director Astro del Castillo, meanwhile, said the downgrade made a huge impact on confidence and the gloomy sentiment in global markets is seen to persist.
“The delayed action of the US congress on extending the debt-limit limit ceiling and the resulting credit rating downgrade are being cited as one of the major, if not the major, reasons the market has suddenly shifted to a steep decline,” said Justino Calaycay Jr. of Accord Equities.
He cited that since the stock market is a barometer of confidence in and the direction of the broad economy, “the drop in stock prices across the board translates to investors expecting the economy to slow and corporate bottom-lines to suffer as an end-result.”
The Agence France Presse reported that Geithner sought to reassure investors before markets opened Monday, slamming a historic US credit downgrade as a ‘’terrible judgment’’ and insisting the US economy is strong.
‘’I think S&P has shown really terrible judgment and they’ve handled themselves poorly, and they have shown a stunning lack of knowledge about basic US fiscal budget math, and I think they came to exactly the wrong conclusion,’’ Geithner said
He stressed that “there is no risk the United States of America would ever not be in a position to meet its obligations.’’
Geithner spoke in a television interview even as G7 central bankers and financial chiefs pledged to take ‘’take all necessary measures’’ to support financial stability and growth in the wake of a Eurozone crisis and the US credit downgrade.
Former US Federal Reserve chairman Alan Greenspan, speaking earlier on NBC, said he believes the markets will react negatively to the downgrade and that it’s ‘’going to take a while to bottom out.’’
The credit downgrade ‘’hit a nerve,’’ an indication’’ that there is something basically bad is going on. And it’s hit the self-esteem of the United States, the psyche. It’s having a much profounder effect that I conceive could happen.’’
Greenspan, however, said that US Treasury bonds are still a solid investment.
‘’This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that. There is zero probability of default,’’ Greenspan said.
