Capital markets pause for breath as rate hike fears upset stock prices

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The Philippine Stock Exchange headquarters. BUSINESSWORLD FILE PHOTO

MANILA – Companies seeking to tap the stock market for funding may stay on the sidelines until the dust from the global equity sell-off settles, as investors grapple with rate hike fears.

The bellwether Philippine Stock Exchange index (PSEi) — a barometer of investor confidence — wiped out its gains in a volatile week for investors that saw the main gauge plunge 3.49% to 8,503.69.

The benchmark index is now down 0.64% for the year after surging to an all-time high of 9,058.62 just 10 sessions ago, as Wall Street succumbed to a correction on concerns that rising borrowing costs will derail economic growth.

“We hear that investors and issuers are revisiting their timetables to take into account global market developments in addition to the changing monetary policies that may have an impact on interest rates and global growth and development,” PSE Chief Operating Officer Roel A. Refran said in a mobile phone message.

The PSE pushed back a planned P3.16-billion stock rights offering to March in light of the turbulence gripping markets worldwide.

Other companies may adopt a similar wait-and-see stance until the equity market normalizes while they pursue the necessary preparatory work to launch their offers when the window of opportunity presents itself, China Bank Capital Corp. Managing Director Virgilio O. Chua said.

“It’s still a go for my clients. They are still positive and optimistic. Volatility is normal and we will just adjust prices as necessary,” BDO Capital and Investment Corp. President Eduardo V. Francisco said.

With the PSEi kicking off the year with guns blazing, corporates embarked on bold fund-raising initiatives to capitalize on the strength of the stock market.

Bank of the Philippine Islands, Metropolitan Bank & Trust Co., Rizal Commercial Banking Corp., Robinsons Land Corp., and Integrated Micro-Electronics, Inc. announced their respective plans to sell shares worth more than P150 billion to existing investors.

“If the rights shares are offered at a discount to market then the current market weakness shouldn’t affect the existing offers too much,” PNB Securities President Manuel Antonio G. Lisbona said.

“For new or planned offers, the volatility might make timing the announcement and the pricing more tricky.”
RCBC Securities is sticking to its yearend forecast of 9,500 for the PSEi as long as the benchmark index stays above the critical support level of 8,100, its Head of Research Raul P. Ruiz said.

First Metro Investment Corp. (FMIC) Head of Research Cristina S. Ulang warned that global equities markets will remain volatile as central banks gear up to normalize policy rates.

The United States Federal Reserve raised borrowing costs three times last year after maintaining interest rates near zero for nearly a decade in an effort to buoy the world’s largest economy in the aftermath of the global financial crisis in 2008.

Fed policy makers are expected to lift key rates three times this year, as the US economy continues to show signs of strengthening.

Rising US Treasuries also reflect overheating risks that are affecting global markets, with the Bangko Sentral ng Pilipinas (BSP) projecting higher inflation despite standing pat on interest rates in its last policy-setting meeting, Ms. Ulang said.

The BSP expects inflation to average 4.3% this year, surpassing the 2-4% target range due to price pressures stemming from the new tax reform law that increased the cost of fuel, cars, tobacco, coal and sugar-sweetened drinks.

“Accumulate blue chips slowly on dips as the Philippines remains one of Asia’s best macro growth story,” Ms. Ulang said.