Business & Economy

Palace not worried with stock market dip

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MANILA -- Despite Thursday's dramatic drop in the Philippine Stock Exchange (PSE) index, which came amid the Aquino administration's pronouncements of economic gains, the public has nothing to fear as far as the economy is concerned, a Malacañang official said Friday.

“We believe that this does not have any reflection on the fundamentals of the economy,” Communications Secretary Ricky Carandang said at a briefing. “We think that the fundamentals remain intact based on the growth that we’ve seen, the low-inflation environment.”

Last month's inflation was at 2.6 percent, the lowest in 13 months.

On Thursday, the PSEi plummeted by almost 7 percent as foreign funds continued an exodus from emerging markets in Southeast Asia driven by woes over an early tapering of US Federal Reserve bond-buying stimulus.
Carandang said Thursday’s slump was an effect of external factors, specifically the pulling out of global fund managers.

“The fall in the market was due to external factors, the fund managers selling stocks across the board,” he said, adding the economy will right itself in time.

“We just need to ride out what’s happening in the global markets. So it does not reflect the fundamentals of the Philippine economy,” he said.

Carandang expounded on the external nature of the slump by saying it was motivated by fear that interest rates will climb.

“It means fund managers are worried that interest rates will go up. But interest rates go up, they tend to sell stocks. They’re guessing, they speculated to some extent and that has led them to sell stocks around the world, including the Philippines,” he said.

Carandang's statement echoed the earlier pronouncement of the Bangko Sentral ng Pilipinas (BSP) that there is nothing to worry about the recent slump in the domestic equities as well as foreign exchange markets.

According to Carandang, the central bank “has not signaled either way, and it’s not so much concerns about what our central bank will do, but it concerns about what the United States Federal Reserve will do, and to some extent, what the European Central Bank will do.”

“If the Federal and European Central Bank raise interest rates, that will create pressure on smaller central banks like ours to do the same, and that’s what stock markets are worried about right now,” he added.

“But there was a Monetary Board meeting yesterday and they did not signal either way so it’s really mostly external factors,” Carandang said.

Carandang also attributed part of the slump to existing fund manager allocations.

“Fund managers have certain allocations. For example, 50 percent for stocks, 50 percent for bonds. If your stocks go up, and your bonds go down, your 50-50 starts becoming 60-40 and you have to start unloading in order to rebalance your portfolio,” he said.

“For those reasons, rather technical reasons, people began to sell stocks around the world, including the Philippines,” Carandang added.

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