Inflation fans investor worries as PSEi tanks to lowest in March

MANILA, Philippines — Inflation fears continued to outweigh recovery prospects in investors’ radar, prompting the Philippine Stock Exchange to sink to its lowest level this month so far on Monday.

Investors retreated on the first day of trading week, sending the bellwether Philippine Stock Exchange index (PSEi) down 1.81% to 6,756.92. The broader all-shares index lost a bigger 1.9%.

All eyes were on inflation as world crude prices, already rallying on expectations that the global recovery will boost demand, jumped more than 2% Monday . This came on top of a 4% gain on Friday after a missile and drone attack on Saudi Arabia’s oil industry fanned concerns of a shortage. 

Brent crude— a global benchmark for oil prices— breached $70 a barrel and is now trading at levels not seen since the pre-pandemic May 2019. At home, rising oil costs is compounding food supply constraints to push inflation beyond the government’s target for two straight months already. 

“Rising COVID-19 cases and the rising inflation and the rising oil prices is dampening investor sentiments,” Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said in a Viber message.

The mood at PSEi reflected that of most of the region, which after starting the week on a high note, closed in the red territory. Markets in Hong Kong ended 1.9% lower, while Shanghai closed down 2.3%. Equity markets in Tokyo, Seoul, Wellington, Taipei and Jakarta also suffered from selling pressure. 

Outliers were markets in Sydney, Singapore, Mumbai and Bangkok which all rose. In European trade, London, Frankfurt, and Paris all opened strongly. 

Inflation was fast taking center-stage in the global recovery efforts that an initial regional upswing set off by a forecast-busting US jobs report and the Senate's approval of President Joe Biden's $1.9-trillion stimulus package quickly reversed. For Beatrice Lopez, equity analyst at Regina Capital, even this good news from the world’s safe haven hurt the Philippines.

“Overnight, US economic data showed signals of economic recovery. This, plus the Phase 5 coronavirus relief bill, likely drove investors to the US markets,” Lopez said in a separate Viber message.

Broken down, financials led the pack of losers at home after shedding 3.29%. This was followed by mining and oil (-3.06%), property (-2.59%), industrial (-1.66%), holding firms (-1.29%) and services (-0.49%).

Decliners beat advancers, 201 against 38, while 29 companies ended flat. A total of 7.2 billion shares worth P9.9 billion were traded during the day.

Moving forward, Ravelas expects inflation-induced panic to persist on the trading floor this week. “If rising cases persist and oil rallies farther. A fall below the 6,700 levels on the index could see 6,300/6,500 levels. Watch this space,” he said.

Lopez agreed. “Sector-wise the weakness can also be seen across the board. Technical-wise, the indicators are showing bearishness, so the index will likely test its support this week.”