Stocks soar on low rates, better tax take

The stock market surged to a 12-month high yesterday on revitalized investor confidence following a host of positive developments led by the Bangko Sentral’s 25-basis point cut in key interest rates, improved tax collections, expectations of a lower inflation figure for the whole of 2003 and Wall Street’s overnight gains.

At the Philippine Stock Exchange (PSE), the 30-company composite index ended up 38.16 points, or 3.1 percent, at 1,266.12 – the highest close since June 11, 2002, when the index finished at 1,274.36.

Sentiment was buoyed by news that improved revenue collections will help the government meet its budget deficit target in June, the third month in a row that the budget gap has been contained, dealers said.

"Investors are beginning to realize that the financial system has become conducive to financing expansion as well as restructuring debts given the lower interest rate environment," Ron Rodrigo of Accord Capital Equities said.

"A confluence of good news helped propel the market higher today," RCBC Securities research head Chelsea Dipasupil told Dow Jones Newswires.

"The rate cut was a pleasant surprise in a way," Dipasupil said. "But we’ll have to be wary on what its effect will be on the peso."

The Bangko Sentral ng Pilipinas (BSP) on Wednesday trimmed its benchmark overnight rates to their lowest levels in 11 years to 6.750 percent for borrowing and nine percent for lending in a bid to sustain economic growth.

The BSP also said they expect inflation to hover at 2.6 percent to three percent for the whole of 2003, substantially lower than the original target of 4.5 percent to 5.5 percent.

Earlier, the National Economic and Development Authority (NEDA) said inflation for June is expected to reach between 2.7 percent and three percent.

Citiseconline.com analyst Mark Alan Canizares said an interest rate cut should boost interest in the equities market, particularly in banking and property stocks, as it gives banks fewer incentives to park their funds with the BSP, freeing liquidity in the system.

"The move should encourage investors parking their funds in fixed income instruments to look elsewhere for better returns, such as in the equities market," he said.

It also gives consumers more incentives to secure loans, prompting interest in banking stocks on expectations of robust loan demand.

Canizares said the gains also reflected Wall Street’s strong overnight performance and expectations that the US, the Philippines’ largest trading partner, is recovering following positive economic data for May.

Yesterday’s turnover reached 410.55 million shares worth P611.28 million, up from Wednesday’s turnover of 337.5 million shares worth P651.34 million.

Philippine Long Distance Telephone Co. (PLDT), was the most actively traded stock, up P25, or 4.5 percent, at P585, buoyed by the 4.2 percent gain by its American Depository Receipts in New York.

The Manila Electric Co. (Meralco) saw its A shares up 70 centavos to P10.50 and its B shares up P1.50 to P16.25.

Ayala Land put on 20 centavos at P6.30, while parent Ayala Corp rose 10 centavos to P4.70.