Philippine Peso weakest in 16 months

As the saying goes, if the United States sneezes, the world catches the cold.

The collpse of one of Wall Street's oldest investment banks have affected the world economy particularly the Philippines.

The impact will of the tumbling of the peso is not totally negative as the remittances of OFWs will have a higher peso equivalent.

September 17, 2008 (PDI) - The collapse of Lehman Brothers, one of Wall Street’s oldest investment banks, Tuesday sent Philippine stocks plummeting 4.5 percent to a new low in a year and a half.

The peso also slid to a 16-month low at 47.20 to the dollar as the fragile health of iconic US financial giants heightened global investors’ aversion to currencies, bonds and stocks from emerging markets like the Philippines.

The Philippine Stock Exchange index (PSEi) lost 114.44 points to end at 2421.72.

Generally, this is sentiment spilling over from the severity of the impact of Lehman’s bankruptcy on the US financial sector. The outlook still remains uncertain, said Ron Rodrigo, head of research at DBP Daiwa Securities.

Tuesday’s close was the lowest for the PSEi since July 23, 2008, when it finished at 2462.94. The market’s fall was also the biggest point decline since March 10, 2008, when it dropped 119.85.

Total foreign selling on the stock market amounted to P1.73 billion, compared with total foreign buying of P747.83 million.

Lehman’s collapse has heightened risk aversion among foreign investors in the Philippine stock market, said Paul Joseph Garcia, chief investment officer at ING Investment Management Philippines. Since the subprime crisis started in August 2007, foreign funds have sold over $1 billion in the stock market. We think that’s around 70 percent of foreign funds that came in prior to the subprime crisis. So we feel that foreign selling pressure will continue and then fizzle to a more manageable degree.

Since Monday’s news of Lehman’s possible collapse, the PSEi has lost 224.4 points, or 8.4 percent.

However, analysts said Philippine corporations should not be severely affected by the US subprime crisis.

Banks here are not overleveraged [dependent on debt] like US banks. In fact, banks here have too much cash. But [stock market] sentiment will definitely be affected, April Tan, head of research at CitisecOnline.com, said.

Emotions got the better of investors Tuesday as they sold heavily the stocks of banks that disclosed direct exposure to Lehman Brothers. The financial index showed the biggest loss at 8.41 percent, or 55.3 points, to 602.08.

Banco De Oro Unibank Inc. was the market’s third-biggest loser as it slumped 15.38 percent or P6 to close at P33 a share.

The peso tumbled to 47.30 to the dollar before closing at 47.20 as investors pulled money out of risky investments in emerging markets to seek safer havens, particularly cash and US Treasury securities.

Banco de Oro Unibank chief strategist Jonathan Ravelas said the next key barrier to the dollar’s climb against the peso would be 48.00 to the greenback.

The peso is at its weakest level since hitting 47.36 to the dollar on May 11 last year. It has depreciated 12.5 percent since the start of the year, making it among the worst-performing currencies in Asia this year.