Local markets fell across the board yesterday after President Gloria Macapagal Arroyo declared a state of emergency and investors braced for more political turmoil this weekend.
“Players took a defensive position in reaction to local developments. The market will be looking for information. As the news is further digested, there will likely be a correction. We are watching market developments,” Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr. said.
The peso fell almost 1 percent, stocks retreated more than 2 percent and the country’s dollar sovereign bonds weakened as President Arroyo imposed emergency rule after security forces said they had foiled a coup plot.
“The natural knee-jerk reaction would be to panic. With the weekend looming as well, it’s hard to see markets stabilizing this afternoon,” said Patricia Lui, managing analyst at Informa Global Markets in Singapore.
The peso fell to its lowest level in close to four weeks yesterday at 52.23 per dollar, down from Thursday’s close of 51.66. The peso averaged at 52.009 on total volume of $797.84 million at the electronic spot market.
Dealers said dollar selling by the BSP smoothed the peso’s fall.
“We might be seeing further peso weakness in the coming days unless we see some stability on the political front,” said Lito Biacora, chief currency dealer at Bank of the Philippine Islands.
He said corporate dollar demand subsided after an initial rush, but investors who had bought the peso earlier this week on signs of an improvement in the country’s finances and economy were selling to close their trades before the weekend.
“With the imposition of the state of emergency in the Philippines, not only will foreign investor sentiment take a hit, at least for the near term, but most of the other factors that were supporting the peso could also fade temporarily,” Swiss bank UBS said in a report.
“Businesses and individuals could limit tax payments due to uncertainty over the government surviving, thereby denting the budget balance once again.
“Also, overseas workers remittances of foreign earnings, which typically have been larger than overall current account, may slow down given the political uncertainty.”
Bankers Association of the Philippines (BAP) president Leonilo Coronel said the Philippines could be put on a negative outlook again by credit ratings agencies.
The Philippines was placed on a stable outlook just last week by two major international credit ratings agencies, FitchRatings and Standard and Poor’s Investor Service. Moody’s Investor Service kept its negative outlook on the country.
Arroyo declared emergency rule, which allows arrests without warrants and an extension of detention without charge, as protesters gathered to mark this week’s anniversary of a “people power” revolt that toppled dictator Ferdinand Marcos in 1986.
Earlier, Armed Forces Chief Gen. Generoso Senga said the commander of the elite Scout Rangers regiment had been detained as the alleged leader of troops who planned to join protests against Mrs. Arroyo by her political foes later in the day.
BSP Dep. Gov. Diwa Guinigundo declined to comment directly on the suggestion the authority had intervened yesterday, although he said it would always act to maintain order in the currency market.
“What the alleged coup failed to do, in terms of weakening the peso, the president managed to do with the declaration of a state of emergency,” said Joseph Tan, regional economist at Standard Chartered Bank.
Dollar bonds from the Philippines, Asia’s largest offshore sovereign borrower outside Japan, also fell, but losses were checked by upbeat investor sentiment in emerging debt markets elsewhere.
The stock market index fell to its lowest in more than two weeks. (Story on A8)
Philippine asset markets, long used to coup attempts—a dozen have been made in the last 20 years—could overcome these jitters but analysts said it was critical for the weekend to pass peacefully.
About 3,000 demonstrators yesterday clashed briefly with police before dispersing at a shrine that was a focal point of the anti-Marcos revolt and another in 2001 that ousted President Joseph Estrada. Eileen A. Mencias, with Reuters
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