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July 2, 2008

Philippine stocks tumble on fears of rise in fuel price, inflation
Share prices of Philippine companies tumbled Tuesday to a 21-month low on fears that continuous oil price hikes, double-digit inflation and a slowing economy may hurt corporate earnings, a local daily quoted analysts as saying.

The 30-company Philippine Stock Exchange index (PSEi)—the barometer for stock price movements—fell by 1.82 percent or 44.73 points to 2,415.25 while the broader all-share index dropped 1.695 percent or 26.64 points to 1,545.04, reported The Manila Times.

According to the PSE, Tuesday’s close was the lowest after it ended at 2,406.48 points on September 14, 2006.

Total volume traded reached 1.418 billion shares worth P3.67 billion. Losers beat gainers 88 to 14 while shares of 39 companies were unchanged.

James Lago of PCCI Securities Brokers Corp. said investors were spooked by the pronouncement of the Bangko Sentral ng Pilipinas (BSP) that inflation last month hovered between 10.4 percent and 11.2 percent on the back of surging world oil prices, which hit a fresh record of $143 per barrel on Monday night. Soaring oil prices have caused domestic pump prices to climb, triggering wage and cost of living allowance adjustments.

Moreover, increases in the prices of rice, fruits and vegetables bolstered the central bank’s expectations of higher inflation last month.

Lago pegged the PSEi’s support level after Tuesday’s fall at between 2,380 and 2,400.

Ron Rodrigo, DBP-Daiwa Securities head of research, said inflation would drag down the economy, propelling companies to “cut their gains” while the volatility in oil prices would make it hard for firms to set their internal targets.

Grace Cerdenia, 2Trade Asia head of research, said investors are more concerned about the effect of inflation on key interest rates, as the market expects the BSP will further tighten monetary policy by 25 to 50 basis points on July 17.

“Market reaction was expected as worldwide fund managers have accepted that interest rates have already bottomed out,” Cerdenia said.

With this scenario, companies—especially conglomerates—have become more cautious in terms of their expansion and financing plans. Some are opting for “the optimization of their internal cash” rather than other modes of fund raising, she added.

Some firms have already revised their revenue and profit forecasts in light of more expensive inputs and consumers’ dwindling purchasing power. Banks have also hinted at tighter interest spreads, which would propel them to seek other measures to keep their profits from being squeezed further by streamlining operations.

“Regionally, we’re in the same boat. Inflation is a contagion that other markets have to contend with,” Cerdenia said.

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