The market’s pessimism spilled over to government securities as Treasury bill (T-bills) rates – the benchmark of short-term credit – went up across the board in yesterday’s auction.
At the stock market, share prices slumped to their biggest single-day fall in more than two years with the main index closing 4.06 percent or 61.25 points lower at 1,447.05, led by a selldown in blue chip stocks.
This is the market’s weakest finish since Dec. 30, the last trading day of 2003, when it closed at 1,442.37.
Decliners led advancers, 51 to 8, with 26 stocks unchanged. Turnover also fell to P817.55 million from Friday’s P872.45 million.
"This is due to the country’s political instability which has weakened the peso. So that’s two huge factors. If you are a foreign investor, that’s a double whammy," said BPI Securities investment analyst Spencer Yap.
At the Philippine Dealing System, the peso weakened back to the P56:$1 level and closed at P56.045 while the weighted average interest rate on the benchmark T-bills went up to 6.216 percent.
Currency trading was brisk, with total volume reaching $152 million. The peso opened at P56 and even managed to appreciate to P55.86 but the run-up was not sustained as the local currency closed at its intra-day low of P56.045 to the dollar.
Traders said banks were worried that despite the government’s assurance, the Arroyo administration was not in total control of its military and various opposition camps were fanning the fires within the ranks of junior officers already dissatisfied with the administration.
"No one is really saying that there will be a junta or a coup but it’s the general atmosphere of uncertainty and confusion that creates this pessimism," said one trader.
Concerns about a brewing military unrest helped undermine the peso last week as it fell to a record low of P56.22 to a dollar on Thursday.
The Bangko Sentral ng Pilipinas (BSP) has already reacted to the persistent volatility of the peso by unleashing its examiners to examine the forex transactions of banks and ensure that there was no excessive speculation in the market.
In its meeting last week, the BSP’s policy-making body gave instructions to crack down on forex speculators and to mete out punishments that would "teach banks a lesson," especially repeat violators.
According to BSP governor Rafael Buenaventura, the directive was prompted by the recent gyrations of the peso-dollar exchange rate that could be exacerbated by speculation if the BSP did not clamp down on forex traders.
T-bill rates also rose across the board yesterday, with the government awarding in full its 91-day bill and partially its 182-day and 364-day bills, the Bureau of Treasury said.
National Treasurer Sergio Edeza likewise blamed political concerns for the market’s high bids, which he said might persist.
"The market is nervous because of a lot of news on the political side," Edeza told reporters after the auction. "We have to let the rates move up so the pressure will not remain."
"No one wants to take the risk and go into the longer tenor T-bills,"added Edeza. "We can’t fight that because its not being driven by economic fundamentals. We will just be using up our energies doing that."
The interest rate on the 91-day notes went up to 6.216 percent while the rate on the 182-day notes and 365-day bills went up to 7.554 and 8.384 percent, respectively.
"We just allowed the market to express its sentiments through the rates and we reacted accordingly," said Edeza. "The concern was purely political."
However, Edeza ruled out the possibility of persistently high interest rates, saying that the rates would settle back down as soon as the perceived uncertainties are removed after the May elections.
"The market is just apprehensive right now, it doesn’t mean that this is the start of a sustained upward trend,"he said.
Meanwhile, index heavyweight and telecom giant PLDT led yesterday’s stock decliners, dropping 5.78 percent or P50 to P815. Second-ranked Globe Telecom followed as it fell 4.86 percent or P45 to P880.
"I think this is a continuation of last week’s profit-taking. The peso’s weakness and the political sideshows were used as convenient excuse to take profits," Asiasec Securities research head Oliver Plana said.
Eagle Equities president Joseph Roxas saw the market’s next support level at 1,430. "The bearish sentiment will likely persist," he said.
Dealers said the sustained correction will give bargain hunters an opportunity to re-enter the market, especially if it is able to find support at the 1,42- - 1,450 range.
Power distributor Meralco B lost 7.35 percent or P2.50 at P31.50 while Ayala Corp., the country’s largest conglomerate, fell 9.84 percent or 60 centavos to P5.50.
Shopping mall developer SM Prime closed 1.64 percent or 10 centavos lower at P6 while San Miguel B ended P1 or 1.41 percent down to P70.