The peso fell to a new seven-year low Wednesday while stocks dropped for a sixth day, as lingering concerns the Federal Reserve will raise interest rates this year damped demand for higher-yielding securities.
“The risk aversion in the market has accelerated,” said Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore. “Asian currencies will continue to come under pressure.”
The peso closed at a new seven-year low of 48.54 against the US dollar Wednesday, weaker than 48.52 on Tuesday. It was also the local currency’s lowest level since it settled at 48.62 on Sept. 4, 2009, at the height of the global financial crisis. Total volume reached $713 million Wednesday.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo attributed the peso’s slide to investors’ consensus expectation of a rate hike by the Fed before the end of the year.
“People continue to talk about the US Fed action in November or December as if this is the first time they heard it…,” Guinigundo said in a text message.
Prospects that the Fed will raise rates for the first time since December have undermined the case for investing in emerging-market assets, which offer higher yields than those of developed nations where central banks are keeping borrowing costs low to prop up growth.
“We’ll see more stress on emerging-market currencies as and when a Fed hike gets closer,” said Jeffrey Halley, a market strategist at Oanda Asia Pacific Pte in Singapore. “The main driver is US yields firming across the curve which is a result of the market increasingly pricing in a Fed hike in December.”
Stocks fell for a sixth day, pulling down the benchmark index to an 18-week low. The Philippine Stock Exchange index, the 30-company benchmark, sank 91 points, or 1.2 percent, to close at 7,429.82 Wednesday. This reduced total gains this year to 6.9 percent
The heavier index, representing all shares, also tumbled 60 points, or 1.3 percent, to settle at 4,429.84 on a value turnover of P8.4 billion. Losers outnumbered gainers, 159 to 32, while 43 issues were unchanged.
All six sectors ended in the red, while only 1 of the 20 most actives stocks advanced. Food manufacturer Universal Robina Corp. rose 0.3 percent to P180.50.
Security Bank Corp. was the biggest loser among the heavily traded stocks, as it slid 7.3 percent to P202.80. Property developer Megaworld Corp. lost 4.8 percent to P4.35, while power retailer Manila Electric Co. dropped 3.6 percent to P291.
Guinigundo said he was unsure if the peso could breach the 49-a-dollar territory in the coming days. “Can’t tell [at the moment],” he said.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. earlier said the peso’s weakness in the past few days was driven mainly by external factors, particularly the expected rate hike by the US Federal Reserve this year.
“I think the volatility will continue until there is a clearer action or decision on the part of the Fed,” Tetangco said.
Fitch Ratings’ BMI Research said the peso could possibly weaken beyond 50 to a greenback in the coming days if President Rodrigo Duterte’s intense war on drugsand continuous tough talking triggered prolonged political uncertainty.
BMI said the peso’s weakness in September was due to the “deteriorating investor sentiment” after Duterte hit back at the US after the latter lashed out at his war on drugs.
“In the event that these fears translate into something more tangible leading to prolonged political uncertainty, we believe that a further slide of the peso beyond 50 to US dollar could be likely,” BMI said. With AFP, Bloomberg
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