Philippine Daily Inquirer
2:08 pm | Tuesday, June 25th, 2013
Sourc: PSE website
MANILA, Philippines—The local stock market descended into “bear” territory on Tuesday, overpowering the bulls for the first time in four years, as a credit crunch in China added to rising global risk aversion sparked by prospects of rising US interest rates.
The main-share Philippine Stock Exchange index lost 185.81 points or 3.11 percent to 5,785.24 in morning trade, wiping out all gains seen earlier in the year.
The index has now pulled back by 1,614.76 points or 21.8 percent since peaking at around 7,400 in mid-May, thereby crossing over from a bull to a bear market. A market is technically defined having gone back to bearish mode when it slides by 20 percent from the peak.
The local stock barometer has likewise slipped below the end-2012 close of 5,812.73 after peaking during the earlier bull run at around 7,400 in mid-May.
A looming reversal of the US regime of easy money and fresh economic woes in China are reversing what was previously seen as an exuberant flow of portfolio funds or “hot money” into emerging markets like the Philippines. This aversion is shifting focus away from the underlying economic fundamentals and strong corporate earnings prospects of the Philippines, dealers said.
A worsening credit crunch in China has added to concerns over the US Federal Reserve chair Ben Bernanke’s pronouncement of ending its aggressive bond-buying activities known as quantitative easing.
“This bear market drop will be very shallow and short-lived in view of the excellent economic fundamentals. The economy is in great shape but the market has broken down due to hot money flows. Bernanke and China slowdown are the catalysts,” said veteran stock broker Ismael Cruz, president of IGC Securities.
“Also, history of bear markets says it lasts only 10 to 12 months, based on post-World War 2 experience of (US index) S&P 500,” Cruz said.
Cruz said the PSEi may be able to find a “rock-solid” support at 5,500 based on a historical price-to-earnings (P/E) ratio of 15x over the 20 years alongside technical support.
Local stock market brokerage DA Market Securities said that considering the added concerns stemming from China, now being compared to the 2008 financial crisis in the US, investors should expect more volatility which could now bring the index to more ideal levels of support – 5,655, 5,360 and 5,219.
On a five-year chart, DA Market believes that 5,219 is a major trend support – the ideal support for the uptrend which started the bull run since 2009.
“We continue to believe in sound fundamentals in the local economic and corporate setting, despite being affected by external sentiment in global markets,” DA Market said.
“Investors looking to buy in tranches may do so at these major supports. However, other investors may opt to see some stabilization before positioning. While some may even wait for upward momentum to resume,” DA Market said.
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Tags: bull run , Business , stocks , `bear’ market
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