Abu Dhabi, UAESaturday 4 April 2020

Philippines becomes first country to shut its bourse due to coronavirus

Sri Lanka also closed its index, while the New York Stock Exchange says they plan to stay open

The Philippine Stock Exchange in Bonifacio Global City Metro Manila was shut after the city went under lockdown to curb the spread of virus. Bloomberg
The Philippine Stock Exchange in Bonifacio Global City Metro Manila was shut after the city went under lockdown to curb the spread of virus. Bloomberg

The Philippine Stock Exchange chief said he plans to reopen the $188 billion (Dh690.5bn) market on Thursday, seeking a quick resumption of trading after the country became the first to shut financial markets in response to the widening coronavirus pandemic.

The controversial move to halt trading came amid mounting speculation that other countries may take similar measures as stocks around the world plunge on fears of a global recession. While Sri Lanka joined the Philippines in shutting its bourse, markets including the New York Stock Exchange have issued statements this week saying they plan to stay open. Chinese markets were shut during an extended Lunar New Year break at the end of January, but they have since been operating as normal even as the outbreak spread.

The closure of equity, currency and bond markets in the Philippines took effect on Tuesday, following President Rodrigo Duterte’s decision on Monday to widen a month-long lockdown of the capital region to cover the country’s main Luzon island, home to at least 57 million people. The bourse is targeting a reopen on Thursday, said Ramon Monzon, the Philippine Stock Exchange’s chief executive.

“If we were given the chance to articulate our position we would have requested that we don’t be included in the closure,” Mr Monzon said, adding that the capital market’s closure was just “an oversight” by government. “Even if the market drops it is better to be open and have that transparency.”

Separately, central bank governor Benjamin Diokno said the monetary authority is leaning toward a 50 basis point interest-rate cut at its scheduled meeting on the same day.

Philippine equities have tumbled more than 30 per cent this year, among the biggest declines in Asia. A US-listed exchange-traded fund that tracks the Philippine market sank by a record 19.5 per cent on Monday after the bourse announced it was shutting.

“This restricts the exit mechanism so it will not be taken kindly by investors who don’t like their flow of funds constrained,” said Manny Cruz, strategist at Papa Securities. “What the market would do when trading resumes depends on the state of global markets. We will see a sharp sell-off if the global weakness continues and a sharp rebound should there be a recovery worldwide.”

Shutting markets during times of crisis is extremely rare but not without precedent. America’s stock market closed for almost a week after the 9/11 terrorist attacks in 2001, while Hong Kong halted trading in the wake of the Black Monday crash in 1987. Greece shut its stock market for about five weeks in 2015.

A survey of international investors conducted by the Hong Kong stock exchange in December 1987 found unanimously that the closure had negatively affected the exchange’s international reputation and had eroded confidence in the Hong Kong market, at least in the short term.

While some commentators have argued that countries including the US should consider temporary market closures, exchanges and regulators have mostly downplayed or rejected the idea. Bourses in Korea and Indonesia said they have no plans to shut trading, while Australia’s exchange said it and market regulators “have a range of measures, some of which have already been taken, to maintain the market’s orderliness and resilience”.

US Securities and Exchange Commission chairman Jay Clayton told CNBC on Monday that stock markets should continue to operate. Nasdaq chief executive Adena Friedman told Bloomberg TV that “it’s much better” to keep the markets open, citing companies’ capital-raising needs and saying “pent-up issues” can occur with closures. The NYSE sent a note after-hours on Monday saying all NYSE Group markets including trading floors would “continue to operate normally tomorrow”.

Analysts had a mixed reaction about the closure of the markets.

“As fewer people are able to participate in the markets, it does expose the market to more volatility. It’s a tough situation, and of course it’s not desirable. But as a short-term measure it may make sense,” said Tomo Kinoshita, global market strategist at Invesco Asset Management.

Justin Tang, head of Asian research at United First Partners in Singapore, said the temporary suspension could "hurt those who rely on trading for an income but will provide time for participants to calm down and evaluate the situation rationally".

Jonathan Ravelas, strategist at BDO Unibank called the step to halt trading a "smart move" as it could help contain the reaction in the market.

"Sometimes taking a step back allows investors to rethink their position and digest the flood of information out there. This is a health crisis we are facing and it seems the market reaction has been too exaggerated.”

Updated: March 17, 2020 11:16 AM

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