Palace says economy stable despite stock market’s fall

MANILA, Philippines - Despite the stock market’s “very dramatic” retreat on Thursday, investors have nothing worry about because the country’s economic fundamentals remain strong, Malacañang said yesterday.

In a press briefing, Presidential Communications Development and Strategic Planning Office Secretary Ricky Carandang said Thursday’s stock market movement was in sync with declines in share prices across the globe.

“Why is this happening? Number one, there’s a concern that central banks around the world are going to taper off on the easy monetary policy. What does this mean? It means fund managers are worried that interest rates will go up,” Carandang said.

“When interest rates go up, they tend to sell stocks. So they saw what? They’re guessing, they’re speculating to some extent, and that has led them to sell stocks around the world, including in the Philippines,” Carandang said.

Another explanation, which he described as “a little complicated,” was that investors had to balance portfolios. 

“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,” Carandang said.

“So, for those reasons – rather technical reasons – people began to sell stocks around the world, including the Philippines,” he said.

But he stressed the development “does not have any reflection on the fundamentals of the economy.”   

With economic fundamentals intact, “we just need to ride out what’s happening in the global markets.”

He also stressed that “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 Reserve 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 said.

The Monetary Board, the highest policy-making body of the central bank, did not signal an increase in interest rates in the coming days.

“So it’s really mostly external factors. If you want to simplify it, I’ll say this: The fall in the market was due to external factors, the fund managers selling stocks across the board; and, number two, it does not reflect the fundamentals of the economy which is still very strong,” Carandang said.

The Philippine Stock Exchange index (PSEi) plunged 6.75 percent or 442.57 points to end at 6,114.08 as stock investors engaged in frenzied selling on Thursday.

Analysts said investors were starving for fresh positive news and were unhinged by the latest unemployment data. Some investors are reportedly pulling out their funds in anticipation of an improving US economy.

While the country posted a record 7.8 percent growth in the first quarter of this year, unemployment and foreign direct investments suffered.