Thursday, April 24, 2008 US recession causes RP bourse to plunge with other markets
THE country’s stock exchange market is down.
“But we’re hardly alone,” said Ed Bancod, vice president and head of research of ATR Kim Eng Securities Inc., during an economic forum at the Cebu City Marriott Hotel Monday.
The Philippine bourse is currently ranked fourth lowest—together with India—with negative 20 percent in equities performance, based on a year-to-date indices benchmark done by ATR Kim Eng and Bloomberg.
“But you can just imagine how China and Vietnam feel,” Bancod told over 80 Cebu-based investors who attended the forum.
Vietnam is the lowest performing stock market with a performance score of negative 42 percent while China performed at negative 36 percent.
Along with the plunge in the stock market, prices of commodities surged, said Bancod.
He said that this is all part of a normal cycle. When the dollar firms up, commodity prices go down, he added.
Analysts said politics was not a major issue in the Philippine stock market’s performance. But it will become an issue, should the country start to experience a rice shortage —which is already happening.
While the stock market is in its current situation, Bancod advised investors to “play it safe.”
He said it is advisable for people to put investments in a split portfolio, where 80 percent can be put in long-term investments while the remaining 20 percent can be traded, as long as one sticks with “fundamentally sound stocks.”
For long-term investments, Bancod urges investors to choose defensive stocks over cyclical ones. Defensive stocks fall less than the market average during the bad
times while cyclicals tend to rise quickly during a downturn.
Defensive stocks are mainly those that are from the food, healthcare, tobacco, utilities and telecommunications industries.
Cyclicals include property, construction, cement, auto makers and media.
Bancod said the conditions being experienced by Asian stock markets are caused by the United States economy, which is believed to be already in recession.
For the markets to fully recover, American financial houses have to disclose the full extent of their subprime exposure, a development that will take time, he said.
The credit crunch in the US was caused mainly by loan defaults in the subprime property market, a sector with compromised credit history. The credit crunch affects not only local lenders in the US but also major global financial houses.
Bancod said he believes that by July or August this year, a full disclosure will be made as the Group of Seven (G7) countries have already discussed transparency.
The analyst also expected property prices will start to stabilize by the second half of this year.
“The US created this mess; (it must) clean it up,” said Bancod. (DME)
