Local stocks plunged Wednesday, tracking the movement of Asian markets after Fitch downgraded the US credit rating.
The Philippine Stock Exchange index lost 110.52 points, or 1.68 percent, to close at 6,483.28, while the broader all-shares index fell 52.09 points to 3,463.86.
“Philippine shares along with the while region plummeted as independent rating agency Fitch cut US rating from top level AAA to a notch lower at AA+,” Reginal Capital Development Corp. head of sales Luis Limlingan said.
Fitch cited the growing US government debt and “steady deterioration” in governance over the last 20 years as factors behind the downgrade.
Asian and European markets followed Wall Street lower Wednesday, as the wind came out of the latest rally, with traders jolted by the downgrade of US sovereign debt, soft economic data and concerns about elevated valuations.
However, high hopes that the Federal Reserve was at or near the end of its interest rate hiking cycle and a still-resilient economy meant the mood on trading floors remained broadly upbeat, analysts said.
Investors shifted away from riskier investments after Fitch cut the US debt rating by one notch from its AAA level, citing a growing federal debt burden and an “erosion of governance” that has manifested in debt limit standoffs.
The move follows a long, drawn-out row between Republicans and Democrats earlier this year over raising the US borrowing ceiling, which had fueled fears of a devastating default by the world’s top economy.
While a deal was eventually struck, the saga rattled markets and reinforced the sense of long-running deadlock on Capitol Hill that has seen the gears of government jammed up.
Though the lifting of the US debt ceiling — a limit on government borrowing to pay for bills already incurred — was once routine, it has for several years become a contentious partisan issue.
The downgrade is the first by a major ratings company since a similar debt impasse in 2011 saw S&P lower its top-notch classification.
White House press secretary Karine Jean-Pierre said the move “defies reality”, while Treasury Secretary Janet Yellen said in a statement that she “strongly” disagreed with Fitch, calling the change “arbitrary and based on outdated data”. With AFP