Philippine Markets: 12 August 2011

12 August 2011 

USD/PhP:          42.64           + 0.10        PSEi:             4321.73                        + 10.71         

USD/JPY:           76.67                        PFINC:                   999.69                        + 8.05 

EUR/USD:         1.4185                        BDO:                  60.00                        - 0.80 

GBP/USD:         1.6179                        BPI:                  57.95                        + 0.60 

PDSTF3M:         2.0250                        MBT:               75.70                        + 1.30 

Prices as of  4:00pm                        Source: Bloomberg, Reuters 

Philippine Interest Rate Outlook 

Secondary market rates moved down by an average of 32 basis points week-on-week as investors sought safety of government debt amidst volatility in the financial markets.  As inflation remains contained, investors are expecting monetary board to keep interest rates unchanged during the next policy meeting in September as economic growth could slowdown due to recent events in developed markets.  Expect interest rates to remain on the low side and move sideways next week. 

Philippine Equities Outlook 

Local shares lost 2.61 percent week-on-week to 4321.73 as global equity markets experienced high volatility after the downgrade of US credit ratings.  The swings in the US equity markets were huge causing panic in global markets.  The PSEi index reached 4,129.30 low during the week, erasing all the year to date gains, but managed to stay in the positive territory again as bargain hunting took place led mining shares.  Expect volatility to continue next week. 

Chartwise, the week’s close at 4,321.73 could see a possible retest of 4,400, however with risk aversion flaring worldwide, any rally could be met by sellers and could still put the 4,100 levels  at risk.

Philippine Peso Outlook 

The local currency depreciated 0.14 percent week-on-week to 42.64 as risk aversion dominated market theme this week.  The currency continues to take its cue to dollar movements against the major currencies especially the euro. 

Chartwise, as long as the 42.25 support level holds, a near-term bounce back to 43.00 levels is still in the cards.  A break below the said level will signal the resumption of the test of the 41.00 levels.

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The recent downgrade of the US long-term debt rating has created a new period of uncertainty. Not until last Saturday, the global sentiment had been more of RISK ON.  But with the recent downgrade, global investors got more than warning sign that the global recovery remain slow and uncertain.

So what does this mean for investors? The markets will remain volatile for now and may last for another 2-3 weeks(normally risk aversion periods may last longer up to 6 weeks). At such time investors may be more comfortable taking on more risks, provided no additional deteriorating news comes. 

Please see table below on near-term expectations for the market: 

BDO UNIBANK, INC. 

Jonathan Ravelas

Chief Market Strategist

(632) 858-3145