Stock market volatility to rise on Brexit jitters

CEBU, Philippines - The Philippine stock market can expect increased volatility following the United Kingdom's historic vote to leave the European Union or the Brexit as overall sentiment remains jittery.

"The direct effect of Brexit is on the movement of foreign funds which influences the PSE (Philippine Stock Exchange) a lot. Brexit changed the global economic equilibrium and funds will from one point to another until things find their balance once again," said Marco Nino Velasco, business development manager at Unicapital Securities Inc.

The aftermath of the UK's Brexit vote throws up many uncertainties.

The PSE index opened lower on Monday at the wake of the Brexit vote last Friday. The PSEi opened at 7,571.37.

"Looking at the bigger picture, I firmly believe that Brexit is a prelude to things that has yet to come. Brexit resulted to $2.08 trillion in losses for markets all over the world eclipsing of the Lehman Brothers bankruptcy in 2008 and the Black Market stock market crash in 1987. I see certain patterns here," Velasco told The FREEMAN yesterday.

Short-term wise, Velasco said, funds will be flowing towards safer haven instruments such as gold and the Japanese yen.

"Apart from foreign fund flows, it would also affect OFWs (overseas Filipino workers)," he pointed out.

He said some OFWs are in UK and Europe "and with their current economic condition, things don't look good."

"A bigger problem is in the Middle East. If Europe can't solve its problem, demand remains tempered. China's manufacturing remains below and it may drive China into a recession. With demand being low, oil prices will drop back down which means more jobs in the Middle East are going to be in peril. Many Filipinos might lose jobs in the Middle East," Velasco explained.

Last Thursday, British voters chose to leave the EU in a referendum. The UK's decision to become the first country to drop out of the 28-nation bloc rattled markets globally on Friday.

"There are a lot of uncertainties right now after almost 52 percent of the Brits opted to leave EU. Markets don't like uncertainties," Velasco also said.

"Summing it up, volatility sure will increase in the PSE following movements of certain markets all over the world. It would be safe to bank on gold for now while things remain so unclear," he added.  (FREEMAN)