By Krista Angela M. Montealegre
National Correspondent

A DEEP SELL-OFF has erased more than P1.5 trillion from the Philippine stock market’s value over the last two months, with the lingering weakness expected to continue amid mounting fears of a trade war.

The local equities market’s total capitalization fell 8.4% from its record high of P18.52 trillion on Jan. 29 to P16.97 trillion at the close of the trading session on Friday, according to data from the Philippine Stock Exchange (PSE).

The reduction was aggravated by international investors, who have been in net selling territory in the amount of P38.23 billion during the same period, the PSE said.

In February, foreign portfolio investments posted a $545.14-million net outflow, wider than the $409.01 million that left the country in February 2017 and reversing from January’s $162.16-million net inflow, the central bank earlier said.

Around 81% of these placements went to companies listed on the PSE, mostly to holding companies; property firms; banks; food, beverage and tobacco firms; as well as casino and gaming companies.

For the January to February period, hot money settled at $795.16-million net inflow, a turnaround from the $168.41-million net outflow posted during the same period in 2017.

With the heavy profit taking, the Philippine Stock Exchange index (PSEi) has entered a correction phase, or a decline of at least 10% from a recent peak. The bellwether index is now down 12% from an all-time high of 9,058.62 tallied on Jan. 29 after closing at 7,970.80 on Friday.

PSEi Performance

“We can continue to expect volatility in the equity market brought about by negative sentiment in the trade wars in the [United States] and the fear of inflation and further peso weakening in the near term,” Michael Gerard D. Enriquez, chief investment officer at Sun Life of Canada Philippines, Inc., said in a mobile phone message.

Global stocks have been taking a beating after US President Donald Trump inked a memorandum that would slap tariffs on up to $60 billion in imports from China. Investors are worried that US trading partners would respond with retaliatory actions that could potentially launch a trade war.

Those moves came as investors continued to confront the normalization of monetary policy in the US.

Last week, the Federal Reserve raised interest rates by 25 basis points and kept its forecast for two more hikes this year. It added another rate rise in 2019 on top of the two increases predicted in December.

The Bangko Sentral ng Pilipinas (BSP) maintained interest rates in the policy-setting meeting last week, with inflation seen to remain on target this year and in 2019 despite price pressures as a result of a new tax program that raised taxes on fuel, coal and sugar-sweetened drinks, among others.

“The market will be weak as it tries to find a new bottom as the trade war talk escalates,” First Metro Investment Corp. (FMIC) Head of Research Cristina S. Ulang said in a separate message.

Analysts said good first quarter earnings reports, solid economic growth data as well as easing inflation could breathe life back to the market.

“If 7,909 is respected then we might trade sideways between that level and 8,300. If support is breached, we might head to 7,700,” said Raul P. Ruiz, vice-president and research head of RCBC Securities, Inc.