MANILA, Philippines — Renewed fears of a possible trade war between the US and China again took its toll on the local financial market as foreign exchange and stock trading succumbed to new lows yesterday.
The peso extended its losing streak to six trading sessions, shedding another 21 centavos to close at a fresh 12-year low after piercing the 53 to $1 mark last week.
The local currency closed at 53.48 from 53.27 last Thursday. This was the lowest level for the peso in almost 12 years, or since closing at 53.55 on June 29, 2006.
The peso, the weakest performing currency in the region, has been falling since closing at 52.385 last June 6.
The benchmark Philippine Stock Exchange index (PSEi) also took a hit, falling to a 14-month low at 7,414.11, down 115.43 points or 1.53 percent. It is the lowest close since April 3, 2017 when the index hit 7,341.65.
Guian Angelo Dumalagan, market economist at Land Bank of the Philippines, said the weakening currency could be attributed to the escalating trade war between the US and China.
US and China exchanged trade threats last week as Beijing swiftly retaliated to US President Donald Trump slapping tariffs on $50 billion worth of imports, putting an additional 25 percent levy on $34 billion of US agricultural and auto exports starting July 6.
“It’s because of renewed trade tension between China and the US. They slapped 25 percent import tariff on each other’s goods,” he said.
Investors likewise continued to seek better yields after the US Federal Reserve raised interest rates by another 25 basis points last week, its second rate hike this year. It penciled two more rate increases instead of one this year.
“Likely hawkish Fed speeches could further support the dollar,” Dumalagan added.
Meanwhile, Astro del Castillo, managing director at First Grade Finance Inc., said the stock selloff was triggered by both foreign and local factors.
“Escalating tensions in the US-China trade war and the weaker peso triggered the selloff yesterday. We saw many investors opting for a flight to safety. The Monetary Board meting this week will force several local market players to just watch the PSEi from the sidelines,” he said.
Luis Limlingan, managing director at Regina Capital, added that the peso’s depreciation was another major factor in the selloff as well.
“With the currency breaching the 53.50 mark, the risk of foreign funds keeping their securities in the local currency increased much further,” he said.
The peso opened weaker at 53.46 to $1, rallied to hit an intraday low of 53.4 before further losing steam to hit an intraday low of 53.5. Trading volume reached $568 million, 28.7 percent lower than the $796.45 million last Thursday.
Analysts said despite hitting a fresh 14-month low, the PSEi has not entered bear market territory just yet as technically, it should be 20 percent below its highest recorded level for the year or at 7,262.70, using the January 29, 2018 closing level of 9,078.37, to classify as a bear run.
The broader All Shares index ended at 4,531.04, down 62.14 points or 1.35 percent.
The rest of the indexes all ended in the red, with the mining and oil and financials indexes posting the biggest declines.
Gio Perez, a trader at Papa Securities, said the next strong support level could be in the area of 7,100.
In its latest Views from the Metro report, Metrobank said persistent demand from corporates continued to pull down the value of the peso against the greenback.
However, it urged investors to be cautious in chasing moves higher for the dollar and peso as the speed and magnitude of the recent move higher could warrant a near term correction towards 53 to $1.
Likewise, the Bangko Sentral ng Pilipinas (BSP) is set to hold another rate-setting meeting tomorrow. During its last meeting, the central bank’s Monetary Board lifted rates for the first time in more than three years.
The BSP raised interest rates by 25 basis points last May 10 to curb rising inflationary pressures arising from higher oil prices as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
“It goes to be seen if price action should continue as players now look towards the BSP’s Monetary Board meeting on Wednesday for better guidance,” Metrobank added.
The higher demand for dollar arising from the importation of capital equipment and raw materials to support the growing economy continued to widen the country’s ballooning trade and current account deficits.
The BSP now expects a weaker external payments position with a balance of payment deficit of $1.5 billion instead of $1 billion as well as a current account deficit of $3.1 billion instead of $700 million this year.
Dumalagan said the peso would likely trade within the 53 to 53.60 range this week.