October 28, 2008
[SIZE=3]PSE Uses "Circuit Breaker" for First Time as Index Dips by over 10%
written by Honey Madrilejos-Reyes and Mia Gonzales
IT was a bloody Monday for the local stock market after the main Philippine Stock Exchange index (PSEi) shed off 239.66 points, or 12.2683 percent, to 1,713.83, the lowest close since September 20, 2004, wherein the benchmark index plunged to 1,702.21. Less than an hour before trading ended, or exactly at 11:23 a.m., the stock exchange automatically imposed a 15-minute trading halt following a 10-percent decline in the main index. Trading resumed at 11:38 a.m.
Monday somewhat marked a history for the PSE because it was the first time a trading halt was implemented to arrest the falling main index.
“The market swayed heavily down due to heavy foreign selling. This stems from the mandate to raise cash abroad and thereby liquidate global assets. With the heaviness still persisting, it may buckle further as fears usually cause markets to break support.
But PSE president Francis Lim remains optimistic of the sound macroeconomic fundamentals of the country.
“Our banking system is also healthy and the corporates are doing well. It’s just an effect of the contagion due to the financial crisis,” he said in an interview.
“The problem with panic selling is that investors are selling out of pure emotion, rather than based on fundamentals
. Almost every market crash is a result of panic selling. Many stock exchanges utilize circuit breakers or trading halts to limit panic selling, to allow investors time to absorb information on why the selling is taking place, and to help restore normalcy to the market,” he explained.
Meanwhile, Malacañang on Monday sought to ease concerns over the suspension of trading and reiterated that the country is properly geared to weather a global financial crisis.
“It’s being addressed by our economic managers. The central bank is there. But we have to recognize the fact that these are local trends..
..But let’s not lose sight of the fact that our economic fundamentals are strong.”
Asked whether the incident at the PSE belied government statements that the Philippines is better prepared than others to face a a global financial crisis
, Dureza said: “There is present volatility, not only in the Philippines. That’s more serious abroad and we are just responding to an international event.”
Dureza said the government has always said the global credit crunch would likely affect the Philippines, though it would not be as hard-hit as others.