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The PSEi Circuit Breaker Was Triggered For the First Time Since 2008. What Does This Mean and What Happens Now?

What will COVID-19 do to the stock market?
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For the first time since October 27, 2008, the circuit breaker of the Philippines Stock Exchange was triggered at exactly 2:53 p.m. The PSEi had dropped 656.13 points by then, a 10.33 percent nose dive that halted trading for 15 minutes.

After PSEi trading resumed at 3:08 p.m, the stock exchange recovered only minimally, closing at 5,756.27, down 9.71 percent from yesterday after losing 616.99 points. PSE’s circuit breaker has only been triggered twice since it was implemented on September, 2008: October 27, 2008, and today, 12 years later, on March 12, 2020.

Without the circuit breaker to limit market volatility, there’s no telling how far PSEi would have plunged due to COVID-19 fears influencing investors to pull out at a demanding rate. The fear COVID-19 has been inciting may be more detrimental than the virus itself as economies around the globe have been grappling with the economic effects of the pandemic.

Around the world, at around the same time the PSEi dropped beyond 10 percent, the stock exchanges of Thailand and Brazil also experienced their own circuit breakers, while European and Japanese stocks plunged at an alarming rate. There’s no doubt that this is part of the fallout of when the U.S. stock market’s own circuit breaker was triggered on March 9 and officially entered a bear market on March 11.

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“As they say, if the U.S. market sneezes, everyone catches a cold,” said April Lee Tan, Head of Research at COL Financial.

With the instability of the Philippine stock market in these tenuous times, today’s events were unsurprising to many.

Analysts saw it coming

“To some extent, analysts were expecting the Philippine market to go down since we are vulnerable to sharp movements in the U.S. market,” said Tan. “Our market already fell ahead of the U.S. because we are part of Asia, which is the epicenter of COVID-19. However, it fell more sharply when the U.S. market dropped and when the number of local victims started to escalate.”

Investor fears were the main cause, just as they influenced “Black Monday,” the unofficial name given to Monday’s global stock market crash. Panic selling is driving the economy down, made worse by the announcement of lockdowns across the world.

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The global bear market is here

While the current situation might not be a “financial crisis” just yet, it’s clear that we are entering a global bear market with circuit breakers getting triggered left and right.

“Last year, global economic growth slowed down significantly,” said Tan. “Although the global economy looked like it was on a fragile recovery early this year, the COVID-19 outbreak will most likely derail that recovery.”

According to Tan, the Philippine market is “small and illiquid,” making it easier for significant market drops to take place when big sell orders are placed by clients. However, “these orders have no regard for fundamentals and valuations,” said Tan.

Things will get worse before they get better

With little buy orders on the market due to pandemic-induced fear, the short-term plan forecast looks to stay low, but the rapid COVID-19-influenced selloff has created the opportunity to purchase stocks at a notably lower price.

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“If an investor has a long-term investment time horizon, then he should stay invested,” advised Tan.

But, it’s “very likely” that things will get worse before they get better: “With [everything] happening now, we should see the peak in April,” said Tan.

Regardless of the circumstance, it’s still about the long game, and we’re not out of the woods yet.

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Anri Ichimura
Staff Writer, Esquire Philippines
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