Yearender: RP stocks shed 49% or P3.909T of value in 2008

The bears ruled the local equities market in 2008, crashing down stocks to new lows as investors headed for the exits following the economic crisis in the United States and other developed countries.

After five years of consecutive growth, the Philippine Stock Exchange index (PSEi) closed the year in negative territory, shedding a total of P3.909 trillion for the year or a decline of 49 percent from the end-2007 value of P7.978 trillion. As negative news kept hitting the stock market, investors unloaded their holdings, sending the main composite index down by 48.29 percent to close at 1,872.85 points as of Dec. 24, the last trading day of the year.

Analysts said 2008 was a year that most of the world’s economies would like to forget. The troubles in the world’s biggest economy reverberated around the world with stock markets recording sharp losses on massive selloffs. There were a couple of times in 2008 when virtually all stock markets across the globe plunged on the same day. This came as no surprise as the US economy accounts for one fourth of the world’s GDP.

The reversal of fortunes came all too sudden. It caught many off guard. This despite warnings of a US recession when the sub-prime loan fiasco first reared its ugly head in July 2007.

The US credit crisis has morphed into a black hole, threatening to push the global financial system to the brink of an economic meltdown.

It stemmed from risky mortgages by banks, forcing them either into bankruptcy or being bought out of necessity by the US government or other financial institutions.

The biggest bailouts were those of Bear Stearns, once the fifth largest investment bank in the US and now owned by JP Morgan Chase, and troubled giants Fannie Mae and Freddie Mac.

The global meltdown forced governments across the globe to step in to offer various bailout packages to stabilize financial markets, restore investor confidence and mitigate the impact of the crisis on the global economy.

The credit crunch took a turn for the worse in September as most currencies in the region depreciated sharply against the US dollar due to the mass exodus of foreign portfolio investors.

Net foreign selling in the Philippine stock market amounted to P47.85 billion as against a net foreign buying of P55.57 billion. The last time the PSE recorded net foreign selling was in 2003 when offshore investors sold P3.8 billion worth of stocks.

Foreign buying slid 50.71 percent to P335.32 billion fromP680.33 billion as foreign funds dumped local stocks in search for safer havens.

Market capitalization of domestic listed companies fell 42.15 percent to P2.47 billion as against P4.27 billion the previous year.

All sub-indices closed lower in contrast to previous year levels with the mining and oil sector taking the heaviest beating losing 61.5 percent followed by the property and holding firms sectors which shed 57.6 percent and 56 percent, respectively.

Stocks in the financial and services sector also declined by 47 percent and 40 percent, respectively.

Among leading real estate firms, Megaworld Corp. of tycoon Andrew Tan, suffered the biggest drop with its share price plummeting to P0.66 apiece or 82.4 percent lower than its 2007 close of P3.75 followed by the Gotianun family’s Filinvest Land Inc. which fell 71.3 percent to P0.39 from P1.36 the previous year.

Robinsons Land Corp., the property arm of listed Gokongwei flagship firm JG Summit Holdings Inc., dived 70.3 percent to P4.90 per share from P16.50 a year earlier.

Ayala Land shares fell 55.09 percent to close at P6.40 from P14.25 while SM Development Corp., a real estate unit of the Sy family, was the least affected with its share price dropping by only 36.34 percent to end the year at P2.26 compared with P3.55 in 2007.

Among the major banks, Philippine National Bank of tobacco and airlines tycoon Lucio Tan, was the hardest hit with its share price sliding 72 percent to P14 per share followed by Banco De Oro which shed 60.3 percent to P24 from P60.50 at end-December last year. The Yuchengco family’s Rizal Commercial Banking Corp. fell 59 percent.

Metropolitan Bank & Trust Co. also declined 57.8 percent to P23 from P54.50 while Bank of the Philippine Islands sank 37.3 percent to P38.50 from P61.50.

Lopez-owned stocks were among the worst performers last year as their values wobbled amid a slowing economy and the battle for control of power utility giant Manila Electric Co. between the Lopez Group and state pension fund Government Service Insurance System.

The controversy drew national headlines as legal cases were even filed against each other, some of which are still pending before the courts.

The GSIS, however, eventually decided to sell its entire 27-percent stake in Meralco to Southeast Asia’s largest conglomerate San Miguel Corp.

First Philippine Holdings Corp., the holding firm for the power generation and distribution and manufacturing businesses of the Lopez family, ended the year at P15.25 from P73.50. Meralco, on the other hand, closed 27.9 percent lower at P59.50 from P82.50.

Energy Development Corp. declined 70.77 percent to P1.90 from P6.50 a year ago while First Gen plunged 83.5 percent to P9.80.

Leading non-bank remittance firm iRemit Inc. was among the few stocks that remained unscathed by the market debacle, closing 4.2 percent higher at P4.75. This was attributed to the continued strong growth of remittances from overseas Filipino workers (OFWs). San Miguel Brewery Inc. closed the year at P8.30, up 3.6 percent from its offering price of P8.

With share prices and investor confidence taking a nosedive, initial public offerings and other share issuances disappeared off the radar, with only two companies — San Miguel Brewery and Pepsi Cola Products Philippines braving the bear market. From its IPO price of P3.50 a share, Pepsi is now down to P0.85.

On Oct. 27, the PSEi plunged 12.27 percent, its worst single-day drop since the Asian financial crisis in 1997. This triggered a 15-minute trading halt to prevent the shares from falling further.

Despite the stock market’s bleak performance, bourse president and chief executive officer Francis Lim said the country remains resilient, pointing out that the PSE is among the top five exchanges in Asia that have been least affected by the ongoing global financial turmoil as of end-October this year.

The JKSE (stock exchange of Indonesia fell 51.32 percent) followed by Singapore’s Straits which dipped 50.12 percent and Hong Kong’s Hang Sang Index which declined by 49 percent.

Lim said while the stock market is not insulated from the present crisis, the broad economic and fiscal reforms that were put in place over the last couple of years are providing significant cushion for it to weather this financial storm.

As the year winds down, analysts believe that the market will gain ground towards the latter part of 2009 even though conditions appear unfavorable.

Jun Calaycay of Accord Capital Equities, said the Philippine government remains confident that sound economic indicators would keep the economy and the market afloat.

He said the world is expecting US president-elect Barrack Obama to stimulate a sagging US economy through the creation of 2.5 million jobs and introduction of an immediate fiscal stimulus package to boost US demand.

“All eyes have been set on what 2009 will bring. In the US, the rise to the presidency of Barrack Obama will be of interest for markets worldwide. His policies and plans to revive the US economy will have much impact and significance in other major and emerging economies,” Calaycay said.

“In everyone’s mind nowadays is “after Bear Stearns, Lehman, AIG and the automakers, who or what will be the next big fall?”

“We are only starting to see some of the massive job layoffs resulting from the closures of firms like Lehman Brothers, Washington Mutual and others. Many more companies are projecting weak sales for the coming quarters, and are estimating that large layoffs are in the near future. These job losses cannot be easily replaced, and will result in a higher unemployment rate in 2009. Keep in mind that the American employment rate of under six percent is historically low, and it may rise very quickly,” Calaycay added.

With incomes slowing and unemployment rising, the rise in credit card spending should open up the possibility of another round of credit defaults from this sector — unless the near-zero Fed target rate’s “influence” on credit impacts sooner, Calaycay warned.

“The confidence aired by our economic managers and political leadership on the ability of the domestic economy to withstand the global fallout should offer investors a semblance of hope that at the end of the day, we are not worse than our neighbors,” Calaycay said.

Jonatahn Ravelas, chief market strategist at Banco De Oro, said the outlook appears promising for consumer stocks and those in the infrastructure and power businesses and those that offer the basic necessities of living like food and healthcare.

He said infrastructure and power are likely to benefit from increased government spending.