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SCMP Reporter

Philippine stocks plunged 4.05 per cent to a 10-year low yesterday with analysts warning the bloodshed may be far from over.

The Philippine Composite Index dived through the 1,000 points level to end at 991.35, its lowest since October 11, 1991, as an exodus by foreign investors accelerated.

Analysts are now highlighting 950 points, 925 points and even 880 points as the next levels of resistance which may be tested in coming days.

'Certainly, at this kind of level, it would be too risky for investors to get into the market,' said Rizal Prasetijo, an equity strategist for JP Morgan Chase.

The index has lost 23.39 per cent since the September 11 terrorist attacks in the United States. Investors were fretting that the Osama bin Laden-linked Abu Sayyaf or other radical Muslim groups could stage reprisals for Manila's support of US bombing in Afghanistan, an analyst said.

With uncertainty over stocks globally after the attacks, some investors fear being trapped. The Philippine stock exchange turns over just US$5 million to US$10 million per day, the second thinnest trade in Asia after Sri Lanka's US$2 to US$3 million.

That makes it a difficult place to cut positions in the event of another huge terrorist attack, Jakarta-based Mr Prasetijo said.

'In this situation, you don't want to be in a market with thin liquidity,' he said.

Foreigners have been net sellers for seven consecutive days and dumped another 69.43 million pesos (about HK$10.45 million) of stock yesterday.

Economically, there are consequences from last month's attacks. Bar Malaysia, the Philippines is the Asian country most heavily dependent on electronic exports which are expected to take a further leg down following the attacks.

The equity sell-off cannot all be blamed on investors jittery over the fallout from geopolitics, however.

Even after yesterday's decline, the Philippine market was still trading at 13 to 14 times this year's expected earnings against about six times for Thailand, said Chris Leung Chi-chung, a fund manager at SB Asset Management.

There were plenty of stock-specific issues which had investors running for cover yesterday and highlight some of the problems in the Philippine market.

Telecommunications heavyweight Philippine Long Distance Telephone (PLDT) plunged 9.27 per cent to 342.50 pesos as its plan to sell up to 20 per cent of its main revenue generator, the mobile operator Smart Communications, got the thumbs down. PLDT, which has a hefty debt-to-equity ratio of 213 per cent, needs to raise cash to meet US$1.3 billion which matures over the next three years.

PLDT is just one of a number of leading Philippine companies, along with the government, which need to refinance debt in the next few months. But with premiums over US treasuries for emerging market debt shooting up since September 11, it would be 'suicide' for them to issue paper, said Mr Prasetijo, leaving asset sales as the only other option.

Another favourite of foreign investors, the Bank of the Philippine Islands, lost 6.66 per cent to 42 pesos on rumours that a top corporate client would default on loan repayments. That underlines how system-wide non-performing loans have risen from 15.1 per cent of total lending at the end of last year to 17.7 per cent at the end of July.

Benpres Holdings lost 9.27 per cent to 88 centavos despite unveiling a deal to shore up its finances by selling property subsidiary Rockwell to electricity producer Meralco, another company in the group.

The deal reminded investors that Philippine corporate governance often left much to be desired, said Robert Penaloza, a fund manager at Aberdeen Asset Management.

The Philippines was also suffering from its declining importance in regional benchmarks due to the higher weightings being given to China, South Korea and Taiwan in recent years, said Han Ong, regional strategist with Salomon Smith Barney.

'It has effectively disappeared from the radar screen,' he said. On October 1, the Philippines made up just 1.42 per cent of the MSCI AC Far East Ex-Japan Free Index. Five years earlier, it was 4.43 per cent, MSCI said.

With liquidity drying up and the country disappearing from fund managers' maps, many foreign brokerages have been slashing staff in Manila or pulling out altogether.

With few broker reports hitting fund managers' desks, a vicious cycle has been created, driving interest and liquidity in the market ever lower.

There were, however, a select few stocks worth looking at, Mr Penaloza said. For example, Ayala Land, a quality real estate play, closed at 3.65 pesos, much lower than its net asset value of eight to nine pesos, he said.

Graphic: phil11gbz



Terror scare plunges Manila to 10-year low