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8 Events That Shook Philippine Stocks in 2016

A recap of the main factors that caused major twists and turns in the local equities market
By Pauline Macaraeg |

 

 

The Philippine Stock Exchange (PSE) Composite Index ended last year pretty much where it began. It closed at 6,840.44 on December 29, the last trading day of 2016, just 7.22 points or a mere 0.1 percent above 6,833.42, its closing price on January 4, the first trading day of last year.

 

Despite closing very near where it opened, the path traversed last year by the PSEi, as the index is commonly called, can hardly be considered stable. Indeed, market volatility, as measured by standard deviation, rose by almost 30 percent in 2016 from the previous year.

 

Only a couple of weeks after trading for the year opened, the market plunged by more than a tenth to the year's low of 6,084.28.  It took a while but the market eventually recovered and reached the year's high of 8,102.30, up by a third from the year's low. The rise was fueled by optimism over President Rodrigo Duterte's vow to continue economic stability while scaling up infrastructure investments.

 

But amid adverse international economic developments, notably the prospect of the US Federal Reserve Board hiking interest rates and falling crude oil prices, the market steadily declined in the second half of the year. The market was also battered by investor uncertainty stemming from the president's outbursts against the US and international organizations that expressed concern over the growing casualties of the government's war on drugs. The PSEi ended about 15 percent below the year's high.

 

The following are the eight events and issues that drove the major market twists and turns last year.

 

1.  Weak Chinese Economy

Just two days after the Philippine market opened for the year, stocks immediately fell sharply because of fears of a major slowdown in China’s economy. That was seen to reduce demand for commodities and manufactured products from many Asian countries, including the Philippines. After a short-lived recovery, the slump continued until January 21, when the PSEi fell to its lowest point in the year of 6,084.28.

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2. Strong Philippine GDP

After hitting the year's low, the local stock barometer started to recover following the government's announcement that GDP in the fourth quarter of 2015 rose by 6.3 percent. The surprisingly strong figure, which was above expectations, helped get the market out of “bear” territory.

 

 

3. Fear of a Federal Funds Rate Hike  

Worries about a possible increase in the US Federal Reserve Board's policy rates battered the global market, and the Philippines was no exception. After the Federal Open Market Committee meeting on April 26 and 27, the local stock exchange continued to drop until early May.

 

 

4. Credible Presidential Elections

The credible conduct and results of the May 9 presidential elections countered investor worries over the Fed rate hike as the PSEi began rising in the run-up and immediately after the polls. The day after the elections, May 10, stocks went up by 2.62 percent and further jumped by 3.09 percent in May 11.

 

 

 

5. Duterte's "Golden Age of Infrastructure"

As President Rodrigo Duterte began his term, the PSEi also started its upward momentum, propelling it to hit the year's high of 8,102.30 on July 21 after the new president promised to bring about a "golden age of infrastructure." A bull run in the US equities market also helped push up the local stock market.

 

 

6. Bright Philippine Economic Prospects 

Buoyant investor sentiment arising from favorable economic expectations helped push up the PSEi. After rising for several days, the index hit 7,721.57 on October 19 after credit rating agency Moody's upgraded its Philippine GDP growth forecast from 6.2 percent to 6.5 percent for 2016.

 

 

7. Falling Oil Prices and Duterte’s Anti-West Tirades

What was the PSEi's longest and steepest losing streak, which took place from late October to mid-November (save for a brief interlude in the middle), came about because of two unrelated factors—one international and the other domestic. Falling crude oil prices (long before the major oil producers agreed on a deal to cut output on November 30) disturbed regional markets over worries it was a sign of a weak global economy. The local market's decline was exacerbated, however, by President Duterte's tirades against the US as well as international organizations such as the United Nations and the European Union for criticizing the human rights violations linked to his war on drugs.

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8. US Fed Funds Rate Hike

The US Federal Reserve Board's decision on December 14 to hike policy rates while signaling more rate increases in 2017 triggered a 3.89-percent drop in the PSEi over a five-day period. However, the market corrected shortly after, helping the index to end the year just a tiny bit higher compared to its opening level at the start of 2016.

 

 

*****

 

Pauline Macaraeg is Entrepreneur PH's data journalist. Follow her on Twitter @paulinemacaraeg

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