VZCZCXRO2796
OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #2824 2290746
ZNR UUUUU ZZH
O 170746Z AUG 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7937
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RHHMUNA/CDR USPACOM HONOLULU HI//FPA//
UNCLAS MANILA 002824
SIPDIS
SIPDIS
STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA
STATE PASS EXIM, OPIC, AND USTR
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE
TREASURY FOR OASIA
USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN
E.O. 12958: N/A
TAGS: EFIN ECON PGOV RP
SUBJECT: U.S. Woes Rattle Philippine Stock and Currency Markets But
Cautious Optimism Remains
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Summary
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1. Jitters over global stock market declines have erased gains
posted by the Philippine stock market since the start of the year.
The peso, previously trading at seven-year highs, has also come
under pressure, although a healthy balance of payments and
record-high foreign exchange reserves will give monetary authorities
leeway to discourage speculation, inject liquidity as needed, and
temper excessive volatility. End Summary.
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Stock Market Drops, Peso Slips
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2. The local stock market -- which has trended down since late July
-- took an especially heavy beating during the August 13-17 trading
week. The Philippine Stock Exchange Index (PSEi) dropped 12.1%
week-on-week, more than erasing all gains that had driven the market
to recent historic highs. At week's close, the PSEi had declined
3.4% year-to-date and 24.1% from its July 5 peak.
3. The peso -- which was trading at more than seven-year highs
above 45 per USD until the third week of July -- has since weakened
below the 46 per USD mark in recent days. It was trading at about
46.85 just before noon local time (midnight Friday Eastern Daylight
time) on August 17, down 2.5% from the previous week's close. The
peso is still up 4.4% year-to-date and stronger than the 48-49 pesos
per USD range in GRP budget and macroeconomic forecasts.
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But Analysts Note Underlying, Positive Fundamentals
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4. Most analysts and traders here believe that the Philippines will
be able to withstand current jitters and financial market
volatilities. Although there have been outflows of portfolio
capital and conversions from peso to foreign assets like emerging
markets elsewhere, bankers told us that they are not seeing massive
capital flight thus far. (Note: Latest Central Bank data showed net
foreign portfolio capital inflows this year at USD 3.6 billion as of
early August, nearly four times the comparable 2006 level. End
Note.)
5. Echoing Central Bank officials, analysts also noted that
financial institutions here are not significantly exposed to
financial instruments underpinned by sub-prime mortgage loans. They
expect a healthy balance of payments (estimated at a USD 4.5 billion
surplus as of July) and record-high international reserves will
allow the Central Bank elbow room to inject liquidity to temper
excessive foreign exchange volatility and discourage speculation.
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Comment
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6. Although volatility may continue in coming weeks, several
analysts predict that the stock market may be close to bottoming out
and is ripe for bargain-hunting, considering positive corporate
earnings reports. The swift reversal in investor sentiment that
tends to characterize foreign portfolio capital investments
emphasizes the importance of pursuing and sustaining
confidence-building reforms, improving the country's competitiveness
rankings, and harnessing higher levels of foreign direct
investments.
JONES