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PSEi, peso gain on Fed’s move retaining ‘QE’

September 19, 2013

Written by Roderick L. Abad and Bianca Cuaresma - Business Mirror

The deferment of the tapering of the US bond purchases boosted investors’ confidence, allowing the benchmark Philippine Stock Exchange index (PSEi) to gain 177.74 points, or 2.81 percent, to 6,551.700 at the end of Thursday’s trading session.

All the other subindices also performed well.

“I expect gains across the board for [the] Philippine stocks,” AB Capital Securities Inc. equity analyst Gregg Adrian R. Ilag said, attributing it to the United States Federal Reserves’ decision not to end its stimulus program.

At the conclusion of the two-day crucial policy meeting of Federal Open Market Committee (FOMC) on September 18, Fed Chairman Ben Bernanke announced it would continue its $85-billion monthly bond-buying scheme.

The tapering of the quantitative easing is aimed at infusing liquidity into the market in the hopes of stimulating economic activity.

The broader All Shares index grew by 91.34 points to close at 3,924.67; the Services companies index increased by 46.26 to 2,048.99; the Property index went up by 112.72 to 2,537.96; the Holding firms
0 index rose by 133.04 to 5,751.90; the Financials index gained 62.90 to 1,603.32; the Industrial index inched up by 146.19 to 9,607.34; and the Mining and Oil indices hiked by 222.61 to 12,899.62

Alliance Global Group Inc. was the day’s most actively traded listed firm, but it remained at P26. It was followed by BDO Unibank Inc. which gained P5 to P80; Metropolitan Bank & Trust Co. added P3.100 to P88.60; SM Investments Corp. was up P44.500 to P829.50; and Ayala Land Inc. grew by P1.350 to P29.45.

Top gainers were Vivant Corp., Panasonic Manufacturing Philippines Corp., United Paragon Mining Corp., Nextstage Inc. and LMG Chemicals Corp.; while big losers were iRipple Inc., A Brown Company Inc., Millennium Global Holdings Inc., Aboitiz Equity Ventures Inc. and IRC Properties Inc.

A total of 1,776,618,839 shares were traded worth P15.97 billion. Gainers outnumbered losers 133 to 36 and 35 stocks remained unchanged.

The local currency closed trade near the 42 territory on Thursday at 43.05 against the US dollar. This translates to an appreciation of almost half a peso from the previous day’s close at 43.53 to a dollar.

Total traded volume also more than doubled from the previous day as it hit about $1.57 billion on Thursday compared to the $777 million in the previous day.

“Markets were overjoyed when the US Fed held off the taper,” Banco de Oro (BDO) Chief Market Strategist Jonathan Ravelas said in a text message.

Ravelas said he sees the peso to range between 43 and 43.25 to the dollar in the coming days.

The Fed’s decision not to end its QE program drew different reactions from the local equity sector.

“The Fed’s [decision] surprised expectations of the consensus,” Ilag told the BusinessMirror on Thursday. “We were also expecting the same amount of taper at around $10 billion to $15 billion.”

The deferment of the QE tapering, though not expected by many analysts, did not surprise Astro del Castillo, managing director at investment management firm First Grade Finance.

“I guess, basically, [there’s still a need for the Fed’s] bond buying to support the financial market and the economy,” he explained.

Castillo agreed with Bernanke’s statement that recent economic data and labor market situations in the United States were not convincing for the Fed to begin the tapering of its QE program. “[They have] to see more [improved] data to support [economic activity before] they could really stop the bond-buying program,” Castillo said.

As the Fed awaits more indications that its economic progress would be sustained, Castillo said he sees adjustments in the pace of its purchases “within the year or early next year.”

Summit Securities Inc. President Harry Liu said the Fed’s QE program aimed at infusing liquidity into the market would still continue to support the recovery of the US economy.

Ilag, however, noted that it would only have a “modest” economic effect given that the money produced by the QE is not translating into capital expenditures by companies. Given the rally in the US equity market overnight due to the announcement of the expansion of the stimulus program, this somewhat caused an uptrend in the global market, as expected.

“Of course, with the US market up, our market with the local economy will be boosted definitely,” Liu said. “It definitely [would] continue our good long-term outlook to the 7,000 area.” But Ilag said the main effect on the Philippines is that “it would induce capital flow back to us.”