July 4, 2001

Weeklong Weakness

For sentimental reasons it would almost be a shame for the index to stop its downslide. For the tenth straight session, and the 12th in 13 sessions, the index registered a decline. With today's 6.08-point drop, the index is now at a strong support level while maintaining its oversold position. For this reason, we believe the bounce may be imminent within the last two days of the week.

That of course presupposes a natural course of events in the usual factors affecting the market. However, with the freefall of the peso we doubt if there will be much buying pressure in the bourse in the coming days. As the peso breached the 53:$1 level, the BSP claimed that the dollar purchases represent legitimate corporate demand and not speculation. In effect, the BSP said that it has not yet stepped in to defend the falling peso, but indicated that it will do so if necessary. Traders however said that a US bank and a European bank sold more than $15mn at the 53 level today, fueling speculations the banks did so for the BSP.

Now instead of directly intervening in the forex market, we believe the BSP may choose to raise interest rates, similar to what it did in the last quarter of 2000 when the peso plunged from about 42 to 50 to a dollar.

Given the parallel weakness of the two markets, we may just see a simultaneous recovery with one market taking its cue from the other. Most probably, it will depend on a decisive act from the BSP. Perhaps by tomorrow, with the Monetary Board's meeting, we may find the answer.

Given today's scenario, it comes as no surprise that SLC performed strongly, gaining P55 to P1250. This puts the issue within striking distance of its all-time high of P1335. MFC performed just as well, padding its price by P40 to close up at P1455. Now both issues are technically overbought. Nonetheless, we believe most investors will continue to trade the issues given the volatility of the forex market.

PLDT, like SLC and MFC has a dollar-asset counterpart. But unlike the two, most of PLDT's assets are based in the country, making it much more susceptible to wild gyrations in interest and exchange rates. The issue didn't finish shabbily though, closing flat at P710.

Meanwhile, in the news, FPH was reported as planning to sell a stake in its subsidiary First Generation Holdings Corp. to a Japanese investor. FPH, which has been in an uptrend in the recent weeks, today closed unchanged at P28.50. Its mother company, BPC was not quite as lucky. The conglomerate faced a deluge of selling orders resulting in a 7.53% decline to P1.72, virtually erasing its gains from yesterday's trade.

RFM, which has generally been an illiquid stock, has attracted much attention in recent weeks after its softdrink unit Cosmos, has been receiving offers from both Pepsi and Coke for a buy-in. Today, 9.7mn shares of RFM traded hands, or almost thrice its 30-day average volume, with the issue gaining 4.88% to close at P1.72. CBC had a similarly positive day as well, inching up 2.33% to P4.4.