September 25, 2000, BusinessWorld (Philippines) Even military success against Abu Sayyaf can't jump-start sluggish market - analysts,

September 25, 2000, BusinessWorld (Philippines)  Even military success against Abu Sayyaf can't jump-start sluggish market - analysts,

 

Expect no marked improvement in the stock market this week as the military assault on the Abu Sayyaf Group extended beyond government's self-imposed one-week target.

 

With government failing to contain within a week the hostage crisis in Jolo, which is nearing its sixth month, market players remained bearish about the direction of the local bourse for the next five days.

 

In a poll conducted among 10 securities analysts and fund managers last weekend, BusinessWorld learned that market outlook for this week remained poor, with players expecting the local bourse to continue its downward trend.

On Friday, the Philippine composite stock index or Phisix slipped to 1,420.61 points from the previous Friday's close of 1,450.99 points.

 

While some market players expect a rally at the local bourse with the early resolution of the Abu Sayyaf hostage situation, most, however, were skeptical whether the rally would last, and worse, whether government could actually meet its one-week deadline.

 

Even as the military assault led to the escape of two French media men held hostage by the Abu Sayyaf last week, and to the killing of at least 60 hostage takers, the military assault in Jolo is far from winding down, especially following reports that the hostage takers broke off into several groups to evade the military's pursuit.

 

As of Friday, the military admitted that containing the Abu Sayyaf problem would take longer than expected.

 

"If the whole thing is cleaned up by Monday or Tuesday, I think it would be very positive on the market and the Philippine economy," said Irving Ackerman, president of securities firm I. Ackerman and Company.

 

"The economy has been held (hostage) by the Abu Sayyaf, so everything depends on (resolving the problems in Mindanao)," he said.

 

Gonzalo Bongolan, Jr., vice-president for research at PCCI Securities, shares Mr. Ackerman's sentiment.

 

"If (the military assault is) successful - and success is defined as hostages released and the Abu Sayyaf Group is neutralized - then it would have a slight positive impact on the market," he said.

 

"It has a positive impact because, sentiment-wise, it means government is able to do something. But the impact is slight because there are other looming economic problems," he added.

 

Market players agree that other problems, apart from the hostage situation in Jolo, are besetting the local bourse. One is the slipping value of the Philippine peso vis-a-vis the United States dollar, which, as of Friday, settled at a new record low of P46.155 to the greenback.

 

A second problem is the continued rise in the price of gasoline due to a

 

supply squeeze led by the Organization of Petroleum Exporting Countries.

 

The rise in oil prices naturally pushes up the prices of other commodities due to increased transport and production costs.

 

Last but not least is the government's ballooning budget deficit, which as of last count has grown by P7 billion over the full-year target of P62.5 billion.

 

"The market would probably rally (if government eliminates the Abu Sayyaf), but it won't mean the market is going up," said April Lee, head of research at Citi Securities, Inc.

 

"But it's hard to say how much it would affect the market, since so many problems are compounding," she added.

 

Other analysts are of the same sentiment.

 

"So far, after the French escaped, the market went up; but after that other factors have been affecting the market. So we don't know yet. We're taking a wait-and-see attitude," said Teresa Lee-Jahrling of Tower Securities.

 

For Russell Ong, head of research at AB Capital Securities, it remains uncertain if the Abu Sayyaf situation will be resolved soon. "We're not optimistic government will meet its target," he said.

 

"Resolution of the Abu Sayyaf (hostage taking) would help, but it's not the ultimate solution to (the problems in Mindanao)," he added.

 

Fitz Aclan, vice-president for sales at KGI Securities, believes it was unrealistic for government to set a seven-day deadline to meet its objective in Jolo.

 

"One week (of military assault) is too (short for the problem) to be resolved," he said.

 

"But the market will continue to pay a close tab on how government contains the situation," he added.

 

Many market players believe that a military assault would not end the problems in Mindanao, least of all a repeat of the hostage-taking activities of groups like the Abu Sayyaf.

 

Realizing that a military campaign could only temporarily hold off the activities of Moro rebels, most analysts believe that a more comprehensive program addressing the roots of the problems in Mindanao would prevent the growth of existing and new rebel groups.

 

"Government won't contain the problem within a week since (the problem) is more deep-seated," said Ivy Cayayan, research head at GK Goh Securities.

 

Fund managers are one with the pack of skeptics, with All Asia Asset Management's Albert Chua saying, "Just like the common cold, no one has found a cure, so the virus is always around."

 

And even if government neutralizes the Abu Sayyaf, the portfolio manager said the "spirit of the Abu Sayyaf" would still be around since any military assault would not eradicate the conditions in Mindanao that breed rebellion and criminal activity.

 

"Military action may be required, but not a military solution," he said.

 

Another analyst noted that even the conclusion soon of the military assault in Jolo will not necessarily bring back investor confidence.

 

"If government were able to conclude its military campaign in the South, and release the hostages, then there would be a positive knee-jerk reaction in the market. But the effect on the market is temporary, not sustainable," said Vince Lazatin, vice-president of GSIS Mutual Fund.

 

"But if the campaign takes longer than a week, then uncertainty sets in - and the market hates uncertainty," he added.

 

And like other market players, Mr. Lazatin said that while foreign investors are affected by the problems in Mindanao, there are other "more important problems," like the fears of inflation brought about by further increases in the price of fuel products, government's failure to contain its deficit within agreed upon levels, and the perception of cronyism in government.

 

"Whether real or imagined, government has to correct (this perception of government corruption)," he said.

 

Market players say government should not expect foreign investors to come rushing in once the Abu Sayyaf is neutralized.

 

"Foreign interest wouldn't be rekindled, not in a week's time," said Jovis Vistan, economist at Wise Securities.

 

Government would have to restore a level of normalcy in the South characterized by the pullout of military forces and the local police's assumption of peace and order functions, said All Asia Asset's Mr. Chua.

 

"(In the eyes of foreign investors) what is happening in the South is akin to what is happening in Indonesia with its religious strife. So people are staying out of the Philippines. Remember, people worldwide may know where the Philippines is, but don't really know the country," he said.

 

Echoing the opinion of peace advocates in government's ongoing conflict with the Moro Islamic Liberation Front (MILF), some analysts believe containing the Abu Sayyaf's hostage-taking activities should be a first step in the direction of finding a peaceful solution to the problems in Mindanao.

 

"Government has to finish the Abu Sayyaf problem first. Once it's successfully concluded, then government will have to sit down and talk peace (with the MILF)," Mr. Ackerman said.

 

"It's such a shame because there is big money to be made in the Philippines (if not for) all of these problems," he added.