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Friday, September 28, 2001

September 28, 2001

More to Digest

Events have really stepped up in the country as well as abroad.

In recent months, after the May 1 attack on Malacanang by Estrada loyalists, the stock exchange experienced steadily decreasing volumes. Among the reasons then was the uncertainty of newly installed President Arroyo’s performance in the coming months. Thus from the once-in-a-lifetime rally that saw the Phisix rise by an intraday high of 500 points, the same Phisix has continuously descended to what is now a fresh 8-year low.

By slipping another 14.96 points today, the main index once again threatens to test the latest support blocking its descent. We see 1075 as the next formidable support level and we see it being tested perhaps early next week.

So is it time to start bargain hunting? We checked out the more popular index issues for possible signals. We found a great number of them already in oversold territory. These would include: ABS, BPC, BPI, FPH, ICT, ION, JFC, MBT, MER and MERB. Among those issues, we only see MERB as primed for an immediate technical recovery. The others will probably share in the index’ depression until next week.

Now, if in the previous months, analysts generally blamed “lack of incentives to buy” as the cause of the index’ demise, this time around there seems to be a conspiracy of factors involved. The former reason of course was propagated after the technology meltdown in the US. At that time, opinions clashed as to whether the US can weather the dotcom crash with an aggressive monetary loosening strategy. Fed rate policy after all, was an erstwhile potent weapon by the US government.

However, for the year, the Fed had already cut rates by an unprecedented eight times, with the last taking place just before the New York Stock Exchange reopened after the terrorist attacks on the US. There are of course arguments that effects of rate cuts will lag by several months from implementation. So where does the US stand at this point? For sure, the tech meltdown has not reached bottom. Multi-billion dollar companies like Compaq and Dell have in fact been forced into a merger following the global slowdown in demand for PCs. In recent weeks, major technology companies have been issuing advanced profit warnings for the third quarter. And just yesterday, the US reported a nine-year low in unemployment. This was of course following a previous announcement that consumer confidence recorded its largest one-month drop since October 1990.

It’s a lot to digest already. For one it would definitely mean a continued drop in our electronics-heavy bag of exports (which incidentally have been declining for six consecutive months.) The slowdown in the US would also threaten our “export” of IT manpower, erstwhile touted as one of the bright points of the country.

Now this looming “infinite justice” war by the US can only serve to aggravate that situation. The borderless war, which is widely seen as a diplomatic landmine requiring the US to sleep with former enemies, most notably Iran, may even threaten the welfare of OFWs situated in the Middle East. That alone may threaten the economy in at least two ways: through unemployment and a cut in dollar remittances. Unemployment of course is already at a high 10.1% for July, while the country’s Gross International Reserves (GIR) have already slipped to $14.207bn as of end August following the BSP’s defense of the peso a month before.

Another headache in the making is the passage of the anti-money laundering law. The “watered down” bill to be passed by the bicameral committee of both houses of Congress may be disapproved by Paris-based Financial Action Task Force (FATF) as effective legislation against money laundering. Salient points against the bill would include the requirement of a court order before government authorities can inspect bank accounts as well as the non-inclusion of such crimes as plunder and tax evasion in the law. Of course it doesn’t inspire confidence that US tax evader and fugitive Rep. Mark Jimenez and plunderer-heir Rep. Bongbong Marcos are part of the bicameral committee.

Lastly, we can also view corporate health as a factor in the market’s decline. We all observed the sell-off that PLDT faced when reports came out that it may breach its 5.5:1 debt/equity ratio covenant with creditors. This time around, it’s Benpres facing the heat. The issue has had an unabated decline since August 17, falling by an aggregate of 46.1%. We noted that the issue’s trades have swelled in recent days, even as it closed another 2% lower today to P0.98. Notably, the company has P1bn worth of LTCPs supposedly maturing this month. So far the company has not issued any statement regarding the payment or refinancing of that debt. In light of this issue, both subsidiaries Meralco and ABS have likewise experienced heavy sell-offs. In light of these developments, it would be prudent to check not just the demand outlook of listed issues, but financial health, specifically liquidity as well.

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