MANILA, June 22, 2005
 (STAR) By Des Ferriols - Mounting political concerns and surging oil prices prompted investors to sell Philippine assets yesterday, sending the Philippine Stock Exchange (PSE) composite index tumbling by more than 50 points and the peso nearing the 56-to-a-dollar level during intraday trading at the Philippine Dealing System (PDS).

Analysts said plans by forces opposed to President Arroyo to hold a major rally later this week dented market sentiment as a scandal over allegations of poll fraud against the President threatens her government.

"What is unnerving investors is news of a big rally being planned late this week," said Astro del Castillo, managing director at local investment firm First Grade Holdings.

"It could be used as a platform by the opposition to lobby for civil disobedience or even to remove Arroyo from office."

The rise in crude prices to near $60 per barrel is also seen as damaging the Philippine economy, which imports nearly all its oil and is already struggling with high inflation, which averaged 8.4 percent in the first five months of the year.

The peso touched a new five-month low of 55.940 to the dollar during intraday trading, while Manila’s main stock index fell more than 50 points, or 2.53 percent, to settle below the 2,000-point mark at 1,954.09 points, its lowest close since June 10.

The index has dropped more than nine percent since early March but is still up more than seven percent so far this year.

At the PDS, the peso managed to recover at the end of the session, closing at 55.640 or 10.5 centavos higher than Monday’s close of 55.745 to the dollar.

The Bangko Sentral ng Pilipinas (BSP) said the peso had appreciated enough since the beginning of the year that even with the recent weakness of the currency against the dollar, there was still a net appreciation in the exchange rate.

"The exchange rate is actually still within the 55-57:$1 range that we projected and we believe that our assumptions are still valid," BSP Deputy Goverbnor Diwa Guinigundo said.

From January to the end of May, Guinigundo said the peso appreaciated by 3.3 percent to 3.4 percent. After the much-publicized tape allegedly proving election fraud, Guinigundo said there was still a net appreciation in the peso.

"The question, of course, is whether it will be sustained," Guinigundo said.

Philippine sovereign dollar bond prices fell as the persistent political uncertainty overshadowed signs of progress in the government’s battle to plug its budget shortfall.

Prices on Philippine sovereign dollar bonds due in 2015 eased of a point to 103.50 on bid despite Monday’s news that the budget deficit was P7.6 billion in May, down from P12.7 billion a year earlier.

In the first five months of 2005, the budget deficit was P67.8 billion, more than 12 percent lower than a year ago and only 70 percent of the government’s first-half target.

"Political jitters are putting caution into the market," a Manila-based trader said.

HSBC said it held its overweight position on the Philippines due to the improving fiscal position, saying: "There is little risk of another people-power type protest having sufficient popular support to force the president to relinquish her power."

Police were on full alert ahead of planned street protests on Friday and Saturday.

Leftist activists, church-backed groups and opposition leaders have said they would clog the Philippine capital with thousands of protesters to raise pressure on Arroyo to break her silence on the fraud allegations.

Mrs. Arroyo, whose ratings are at record lows, has declined to say whether it is her voice on recordings of a telephone conversation which the opposition says bolsters its claims she cheated her way to victory in last year’s elections.

The scandal, which follows allegations that Arroyo’s family members took illegal gambling payoffs, has sparked rumours of coup attempts and mass protests.

Five-year Philippine credit default swaps – insurance-like contracts that offer protection against debt default or restructuring – widened by 5 basis points to 390/405 bps.

Blue-chip Philippine Long Distance Telephone Co. (PLDT) was the most actively traded stock, losing 0.3 percent to P1,610, in step with the 0.9 percent loss by the company’s American Depositary Receipts in New York on Monday.

Active stocks included property concern Ayala Land, which fell 6.2 percent to P7.60; Banco de Oro, down 3.1 percent at P31; and Ayala Corp., off 6.4 percent at P327.50. – Reuters, AFP

Reported by: Sol Jose Vanzi

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