MANILA, 7 July — Political uncertainty combined with a seemingly uncontrollable budget deficit caused prices on the Philippine Stock Exchange (PSE) to plummet to a fresh year-low last week.
The composite index fell 3.17 percent as it shed 36 points and finished at 1,119.72 points. Turnovers had, however, improved and value turnover rose 48.9 percent to P2.59 billion ($51.28 million). Volume turnover also increased 10.52 percent as 1.21 billion shares changed hands.
Stock trading was affected by the deficit. The government earlier said the budget deficit ballooned to P107.5 billion in the year’s first five months, exceeding by a huge margin the first half target of P78.26 million.
“The budget deficit is one more negative factor pulling down the market. A lot of negative external factors are there for the past days, and the budget deficit is (more) bad news for investors,” Enrique Santa Ana of DBS Vickers Securities Inc. said.
“It’s because of the budget deficit. It’s most likely that we may overshoot the budget deficit target this year. That is sending the wrong signal to the stock market. Eventually, our interest rates may go up,” Henry Ong, vice president for sales at KGI Securities Inc., said.
Traders said the news on the deficit could put pressure on interest rates. Officials maintained the situation would be retrieved before the end of the year by improved tax collections, and that the government was maintaining its 130-billion-peso full-year deficit target.
“Based on current numbers and tax collection levels, there is no way the target could be attained,” said Song Seng Wun, a regional economist at GK Goh Securities in Singapore. “At best, the budget deficit (at the end of the year) would be near last year’s level, if not above. I was looking for P137 billion previously. Now I see it at around P195 billion.”
The government posted a deficit of P147 billion last year, only about two billion pesos over target. Oliver Plana of Asiasec Equities Inc. said there were also concerns that the infighting within the ruling political party was distracting President Gloria Macapagal-Arroyo from pushing her economic agenda. Guingona, president of the ruling party, was eased out as foreign secretary over differences with Ms. Macapagal-Arroyo regarding policies.
After the slump, Mark Alan Canizares of Citiseconline.com said “most stocks will rally or at least have a slight rebound.”
“It might be tempting for bargain-hunters to come in because most of the sellers that were affected by negative sentiment have already been flushed out in the last few days,” he said.
