July 17, 2001

Dollars and Sells

We had a visibly depressed market today, as was to be expected. Following the peso's decline to a morning-low of 53.95 to a dollar, we could have in fact expected panic to set in to the stock market as well. That didn't quite transpire, although the PHISIX did lose 13.6 points by the end of today's trading session. Turnover swelled to almost P800mn coming from an average of under P500mn, but not because investors were rushing to liquidate their holdings. About half of the turnover was from a cross involving Pure Foods (PF). The next most significant in terms of pesos traded would be PLDT (TEL), which continued to weaken despite the peso situation. The issue after all, is partially hedged because of its ADRs that are traded in the New York Stock Exchange (NYSE). Well not today it seems. TEL closed lower by P5 to P685.

However, it was not really PLDT that drove the market down, but San Miguel. The company's "B" shares which yesterday shot up by 7%, succumbed to selling pressure today, dipping by 2.8%. The issue closed at P52, but fell to as low as P51 in mid-trade. It's "A" shares lost P0.5 to P43.

RFM, on the other hand seems impervious even to a technical correction at this point. It gained another 2% today to P2.55 even as the company disclosed that it expects to come into an agreement with one of the buying parties (Coke or Pepsi) within the week. Then again, that particular disclosure has been coming out for weeks, so we would take it with a grain of salt.

Included in the minority of gainers today would be Digitel (DGTL), which had a subtle 2.04% uptick to P0.5. The company earlier disclosed that it would issue new shares to a strategic investor in order to raise funds. DGTL estimates a capex of $500mn over the next five years for its cellular operations. Apart from the equity infusion, the company also plans a $210mn bond offering.

We expect more downside from the market in the coming days. Since a continued correction did not materialize (with two out of six days closing up), the potential technical rally may be delayed. Already midweek, we would expect the market to inch down to the 1370 level, which is a safe support level. The worrisome peso situation will assure that. After all, the BSPs high-profile talk-down against speculators doesn't seem to be working at all. Lip service and the occasional direct intervention in the forex market seem to be the tools of choice by the BSP. The bank has been unwilling to raise its overnight rates, perhaps because of the adverse effects on the country's already out-of-control budget deficit (try P180bn). Still, it seems that rates are already on the rise, judging from the T-bill auctions yesterday, which saw all tenors rise. That may yet be another signal that the market will continue its descent.