Philippines record plunge shows risks of shuttering stock market

The Philippine Stock Exchange said on Thursday the bourse is considering revising the circuit-breaker rule as a temporary measure to address market volatility

Philippine stocks’ record 13.3 per cent slump following an unusual two-day shutdown signals the risks associated with controversial moves to halt trading.

The Philippine Stock Exchange Index plunged as much as 24 per cent in Manila before closing at the lowest level since January 2012, bringing its valuation to the lowest level in 11 years. The declines came ahead of the central bank’s decision to cut its key rate by 50 basis points and amid concerns that a 27 billion peso ($528 million) fiscal stimulus won’t be enough to tackle the spread of the coronavirus.

“The two-day shutdown closed the doors to investors who were headed for the exit,” said Manny Cruz, strategist at Papa Securities. The closure of equity, currency and bond markets started on Tuesday, following the government’s decision on Monday to widen a monthlong lockdown of the capital region to cover the country’s main Luzon island, home to at least 57 million people.

“We knew there will be a lot of selling, that foreigners are going to sell, but we have to open and show the world that the Philippine economy is running despite the scary atmosphere,” said Wilson Sy, a director at the Philippine Stock Exchange and manager of Philequity Fund on Thursday.

The Philippine Stock Exchange said on Thursday the bourse is considering revising the circuit-breaker rule as a temporary measure to address market volatility.

The unprecedented fall in the market sparked demands to shut down stock markets.

In India, #bandkarobazaar was the top trend on Twitter after the benchmark indices plunged 6 per cent to their lowest level in three years.

Also, several top fund managers begged to shut down the Wall Street after it hit down limits for a third time this week.

However, there are opposing views to the proposal of temporarily closing the market.

G Chokkalingam, CEO, Equinomics Research & Advisor says a large market like India can never do that. “It will destroy the credibility and hit foreign investor sentiment.”

Stacey Cunningham, President, NYSE took to Twitter earlier this week opposing the move.

“It is important for the markets to remain open, and for them to function in a fair and orderly manner, as they have been. The market is a reflection of the larger uncertainties that everyone is experiencing during these challenging days. Closing the markets would not change the underlying causes of the market decline, would remove transparency into investor sentiment, and reduce investors’ access to their money. This would only further compound the current market anxiety,” she said.

Those in favour say it is the much needed medicine to calm down the hyper markets.

“Think of it as a circuit breaker on steroids. There is rampant fear at the moment as evidenced by the unprecedented volatility. The suspension will hurt those who rely on trading for an income but will provide time for participants to calm down and evaluate the situation rationally. A weekend is hardly sufficient for that,” says Justin Tang, head of Asian research, United First Partners.

“If the situation improves, this (shutdown) could work out positively for the market and reduce the volatility in the short term as it did China even if the market returns to some adjustments initially. The drawback would be if the situation continues to worsen, that could see to further panic selling when the market reopens,” says Jingyi Pan, market strategist, IG Asia.

Shutting down the markets isn’t an unusual move. The US markets were kept closed for a week after the terrorist attacks in 2011 (9/11). Similarly, Greece had shut its market for more than a month during the European debt crisis in 2015.