What goes around comes around ….

The Philippine market was spooked by the move of Bank of Thailand (BOT) to impose investment control to prevent the appreciation of Thai Baht. Essentially what the BOT did is to prevent short-term funds flow from creating volatility in the currency. Based on the directive by BOT, all banks were required to hold in reserve for one year 30 percent of capital inflows that aren't trade or services-related, or repatriation of Thai residents' investments abroad. Also, foreign investors must pay a 10 percent penalty unless they keep funds in the country for a year. The Thai Baht has so far appreciated by 14% to Bt35.09 to US$1.0. On the other hand, the Philippine Peso has appreciated by 7.9%.

In 1997, Thailand was faced with a similar situation. However, instead of curbing dollar inflow into its financial system, BOT was forced to defend the Baht against depreciation. At its worst, the Baht traded as low as Bt58.00 to US$1.0. This triggered the ASEAN financial crisis. So as the saying goes, what goes around comes around.

So how will this affect the local market? In the short term, we should see volatility in the local market. We cannot deny the fact that Philippines and Thailand are lumped together in the same emerging market basket. Foreign funds will be selling the Philippine market until the situation in Thailand stabilizes. This might erase any hope of any yearend window dressing rally.

However, in the long term, I am still positive on the Philippine market. I do believe that the PSEi will reach 3,100. I guess it’s a matter of time before we reach those levels, for as long as it stays above 2,750.

For investors, the best way to play the market is to be defensive. We should take this opportunity to realign our portfolio and preserve the gains that we had for the year. As the saying goes: “Sell to your sleeping point.” Sit tight and keep a close eye on the market.