Eurozone’s debt problems spook financial markets

LOCAL share prices dropped for the third straight session as the pessimism of the week’s opening session spread to Tuesday’s trades. At the Philippine Stock Exchange, the composite index fell 80.21 points, or 1.95 percent to 4,032.37.
The broader all-shares index lost 44.12 points, or 1.47 percent to 2,965.60.

Market breadth was negative as decliners beat advancers, 104 to 49, while 32 issues were unchanged. A total of 1.85 billion stocks worth P5.39 billion changed hands.

“It has been an excellent two years and there has been no correction phase since March,” said Phillip Frederick Hagedorn, investment director at ATR KimEng Asset Management.

“The impetus for the slide was borrowed from overseas, with the Dow’s overnight retreat weighing heavily on sentiments,” said Jun Calaycay of Accord Capital Equities Corp.

The Dow Jones industrial average declined 37.31 points, or 0.3 percent to 11,637.45. Global markets slumped on concerns that Portugal would seek a bailout to keep Europe’s debt problems from spreading.

Initial resistance is at 4,070 as the market attempts to return to the 4,100-level. Support ranges from 3,970 to 4,000, said Calaycay.

If the main index breaks the 3,900 level, then the market may see a reversal of the bullish upward trend, said Hagedorn.

Following an almost 200-point decline in the last two sessions, the market is ripe for a technical rebound before the closing of the week, Calaycay said.

“In this scenario, we can expect the market to temporarily shift focus to second-line and index counters while pushing speculative, news-driven trades to the sidelines,” he added.

“This is a welcome opportunity for more investors to come into the market,” said Hagedorn.

At the Philippine Dealing System, the peso on Tuesday recovered from a three-day losing streak since Thursday against the dollar.

The peso-dollar pair closed at 44.125 from Monday’s 44.31 finish.

Although the peso opened weaker at 44.35, it saw momentum toward the afternoon amid speculation that China will allow the yuan to appreciate at a faster pace ahead of President Hu Jintao’s visit to the US next week.

The peso-dollar exchange rate tested a low of 44.095.

Trading volume eased to $1.157 billion from $1.249 billion on Monday.

“Asian markets are set to start steady as hopes for a solid earnings season countered fears that Portugal may be the next euro zone member to need a bailout,” a trader said.

The peso is expected to trade between 44.20 and 44.50.

Metrobank sees P41.5:$1
The Metropolitan Bank and Trust Co. projects the peso to keep appreciating this year, punctuated by bouts of reversals similar to the second half of 2010.

Marc Bautista, Metrobank research head, said the peso will appreciate to the 41.50 level toward yearend, but will be dragged down periodically by negative sentiment such as the debt crisis in Europe as well as market interventions.

During the second half of 2010, the peso was set to appreciate by leaps and bounds, but Bangko Sentral ng Pilipinas intervention and negative sentiment induced by the debt crisis in Europe brought the local currency down, only to recover by yearend to the 43.84 level, the lender said.

“This will be very much the story again this year, as it appears that although the European leaders are resolute to defend the integrity of the European monetary union, investors might be of a different mind, trying to stay ahead of the beeline toward the exit just in case European debt becomes problematic,” Bautista said.

When that happens, investors will flock toward the US dollar or even the emerging markets, which in turn will cause volatility measures to jump, he said.

Metrobank said the local unit was not actually the best performing currency in 2010. Bautista said compared to the Japanese yen, the peso’s rise was cut short by the euro-debt concerns.
–KRISTA ANGELA M. MONTEALEGRE REPORTER wITH REPORT FROM LAILANY P. GOMEZ, Manila Times