MARKETS PLUNGE, THEN RECOVER LOST GROUND

Manila, July 29, 2003 By Des Ferriols (Star) Financial markets plunged early yesterday in response to a failed mutiny by nearly 300 soldiers.

As expected, the peso weakened againt the dollar, but the foreign exchange marketís reaction to the Makati siege was not as disruptive as originally anticipated although the Bangko Sentral ng Pilipinas (BSP) said the recent events would ultimately affect foreign direct investments.

At the Philippine Stock Exchange (PSE), prices quickly bottomed out and regained some of their losses as traders focused on the quick, peaceful resolution to the crisis.

"It didnít drag on like previous coup attempts," said Mark Alan Canizares, an investment analyst at the Citisec online.com brokerage who predicted the fallout in the stock exchange would be short-lived.

"The fact that it was resolved by the time the markets opened is a positive sign that the government is doing all it can do. It tempered the damage that might have been done if the mutiny had dragged on," he added.

Share prices plunged by four percent in the first few minutes of trade but they soon showed a partial recovery, dropping by just 2.11 percent, or 27.04 points, to close at 1,256.76 points.

At the Philippine Dealing System (PDS), the peso fell by more than one percent to 54.60 to the dollar in early trading, its weakest in four months as investors unloaded the peso in exchange for the greenback. However, the currency managed to recover some lost ground, hitting a high of 54.240 to the dollar, amid fears the Bangko Sentral ng Pilipinas (BSP) would intervene heavily to support the peso. By the close , the peso settled at 54.380, or 37 centavos lower than Fridayís close of 54.010 to the dollar. Total volume traded amounted to $118 million on an average rate of 54.326 :$1.

BSP Governor Rafael B. Buenventura said the weakening of the peso against the dollar was no surprise. "Itís a knee-jerk reaction which is usual when something unusual occurs," Buenaventura said.

"I expect the peso to go back to normal range when the day is over."

The BSP chief said "it was completely unnecessary" for the BSP to defend the peso. However, Buenaventura said the BSP is ready to provide liquidity if the market needs it.

"Fortunately, it did not become necessary," he said. "Even withdrawals were below normal considering its very close to payroll day."

Buenaventura warned the Makati crisis will have a long-term impact on foreign direct investments which reacts with more lag time thatn the local financial markets.

"Foreign direct investments, unfortunately will be negatively hit," he said. "For new investors, bad news like this never help. Its unfortunate that we were able to end it quickly and with no bloodshed." Crisis prompts investors to unload

Share prices had moved sharply higher this year, up by 26 percent before the crisis unfolded over the weekend, and some investors took the trouble as a cue to sell and bank their profits.

Analysts warned the mutiny could further spook outside investors who have been worried for some time about the countryís stability.

"Itís a very negative signal weíre sending to foreign investors," said Spencer Yap, assistant vice president at the brokerage BPI Securities.

While traders could take encouragement that the crisis had ended in less than a day with no shots fired, they also had to note "that there was an attempt in the first place," Yap said.

"Everythingís back to normal," said Philippine Stock Exchange President Ernest Leung.

One business leader predicted losses will be contained because the mutiny was quickly brought under control.

"The fall will not be too deep because the problem last night was resolved," said Donald Dee, president of the Employers Confederation of the Philippines, a leading business group.

"Hopefully we can recover because the crisis was handled well," Dee said.

Stock turnover rose to 518.39 million shares valued at P935.47 million from 456.99 million shares worth P372.68 million on Friday.

Philippine Long Distance Telephone Co. (PLDT) was top traded and down P25 at P520 while Globe Telecom fell P30 to P650.

Ayala Land, operator of the Ayala Center, which the mutineers occupied, dropped 10 centavos to P6.60 while parent Ayala Corp. was unchanged at P4.80.


Reported by: Sol Jose Vanzi

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