Prudent Investor: Possibly ABN AMRO's downgrade triggered the Exodus

If you’d ask me, I think that today’s excruciating selloffs was an outlier, we took the biggest loss in the region where most of the bourses were up.

What would have caused this? Certainly for one, today’s activities manifested a huge foreign outflow, some P 364.404 million. Further the liquidations had been broad based meaning more issues encountered foreign selling than buying. So what would have prompted a selloff? Has there been any fundamental deterioration in the economic and political sphere that merited today’s carnage? Some say looming interest rate hike, I would argue that these had been floated for during the past weeks, and the latest rise in Philippine Treasuries would have had the market factored this in. In fact, according to a Businessworld report last month, it was foreign funds pressuring the BSP to raise interest rates. So how can foreign funds be selling when they themselves were asking for the rate increase?

Methinks that it is NOT the looming interest rate hike responsible for the bloodletting but yesterday’s disclosure on YAHOO news that ABN AMRO Holdings ``downgraded its rating on the Philippines to “neutral” from “overweight” citing the country's vulnerability to an outflow of foreign funds” (click on link). Apparently this “downgrade” on stockholdings came as a surprise and foreign money reacted violently to the susceptibility of the market to the whims of foreign funds. What is ironic about this is that ABN AMRO knows that the Philippine Market has been driven largely by foreign buying since June 2003, and because of the recent dollar squeeze it issued what is called as ``stating the obvious”. A Knee Jerk reaction.