MANILA, August 30, 2003  (STAR) By Des Ferriols  - The stock market tumbled to an 11-week low yesterday on lingering political and security concerns, traders said.

The 30-company Philippine Stock Exchange (PSE) composite index lost 25.59 points, or 2.1 percent, to end at 1,192.83 points, the lowest closing level since June 12.

Property companies, led by top players Ayala Land Inc. took a beating after the Bangko Sentral ng Pilipinas (BSP) scrapped a tiering system on overnight borrowing.

It was a mild policy tightening aimed at stabilizing the peso, but market players fear it could result in higher interest rates and less funds available for equities investing.

At the Philippine Dealing System (PDS), the peso retreated anew to the 55 to $1 level, closing at 55.020 or nine centavos lower than Thursday’s close of 54.930 against the greenback.

Traders said the uncertainty created by the resignation of Defense Secretary Angelo Reyes sent the peso stumbling back to the 55 level yesterday.

The peso opened strong at 54.83 to the dollar, but lost momentum towards the end of trade as Reyes announced that he was leaving his post.

Currency traders said the peso was already normalizing as banks sold off their dollars in anticipation of further corrections in the succeeding days. But another wave of uncertainty swept across the market as President Arroyo announced that she was taking over as defense secretary in a concurrent capacity.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said the market was in no condition to be receiving any unusual news, saying that the knee-jerk reaction was only to be expected.

"Unfortunately the market is very skittish, so any Political concerns news that is unusual or unexpected would generate this kind of knee-jerk reaction," he said. "[The resignation] caught the market by surprise."

"The market was clearly on the mend and stabilizing at 55.80 to P55.85," Buenaventura. "After all, our marco-economic fundamentals are good–inflation is down, exports are going up, interest rates are stable and we have improving fiscal numbers."

Buenaventura, however, remains optimistic that the peso will hover at around 54 to the dollar towards the end of the year, up from current levels of around 55.020 to $1.

"I think by year-end it should be at these levels, around 54," Buenaventura said.

The currency fell close to its all-time low of 55.75 to the dollar this week, reflecting a host of negative political factors, including a failed July 27 mutiny and accusations of corruption against President Arroyo’s husband by an opposition senator.

A local court’s suspension of Buenaventura and other BSP officials over the closure of a commercial bank in 2000 also weighed on the market, although the ruling cannot take effect until all appeals are exhausted.

"When they saw that our suspension still had an appeal and there looks like no follow up to the mutiny, people are beginning to calm down," Buenaventura said. Weak Peso Weighs Down Market

"The market’s continued weakness is caused by an interplay of various domestic factors led of course by political uncertainties ahead of the 2004 elections, coupled with a weaker peso and the recent policy move of the BSP to siphon off excess liquidity in the system" said Mark Alan Canizares of Citiseconline.com.

Monetary authorities on Thursday scrapped the tier scheme on the central bank’s overnight borrowing to mop up excess liquidity and bolster the weakened peso.

The BSP said the scrapping of the tier scheme will siphon off some P10 billion from the banking system.

The weakening of the local currency also continued to weigh down the market, Canizares said, adding that "even if stock prices go up, any trading gain is usually eaten up by the peso’s depreciation."

"Foreign investors would usually avoid exposure to such currency risks," he added.

He said investors were rather disappointed by the lower-than-expected second quarter gross domestic product growth.

"People expected the stock market to be a leading indicator of the economy. They were further inspired by better corporate data during the period. Apparently, the much-anticipated growth did not happen," Canizares said.

Top-traded Philippine Long Distance Telephone Co. fell P10 to P535 while Bank of the Philippine Islands slipped 50 centavos to P41.

Security Bank bucked the trend to rise by 25 centavos to P19.25.

SM Prime Holdings fell 10 centavos to P5.40 pesos while Ayala Land Inc. dropped 40 centavos to P5.80.

Losers outnumbered gainers 44 to nine, with 37 stocks unchanged.

Volume turnover fell to 324.12 million shares but value rose to 676.78 million pesos (12.32 million dollars) from 625.30 million shares worth 372.20 million pesos on Thursday.

The all-shares index fell 11.71 points to 768.04 while the commercial-industrial index dropped 22.19 to 1,751.30 and the property index fell 22.55 to 511.23.

The mining sector was unchanged at 1,210.08 but oil was up 0.03 at 1.41. Banking and financial services however fell 11.34 to 411.61.

Reported by: Sol Jose Vanzi

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