Flue Year snofar: Volcanic eruption Asia’s worst stock market currency is being seen

At the start of the new year, mount Tal, a tourist resort in the Philippines, suddenly erupted in ash and steam, and then began to gush, or erupt, on a large scale. Philippine President Rodrigo Duterte’s office has ordered government offices and schools in Manila to suspend classes, and the Philippine stock market announced a halt on Monday (January 13). It is unclear how much impact the eruption will have on the country’s economy.

Volcanic eruptions, economic damage

A volcano near the Philippine capital Manila spewed ash and ash billowing through the capital Manila on Sunday, forcing flightcancellations, closing schools and government offices and forcing residents to evacuate. Experts warn that another “dangerous explosion” could occur.

The Tal volcano on Luzon Island, about 37 miles (60 kilometers) south of Manila, erupted Sunday afternoon local time.

According to the Philippine Institute of Volcanic Seismological Research, local time on the 12th around 1 p.m., the Philippine Tar volcano erupted. The volcano spewed mainly steam and debris, which rose to an altitude of about 100 meters.

Flue Year snofar: Volcanic eruption Asia's worst stock market currency is being seen

“Tal is a very small volcano, but it is also a dangerous volcano,” Renato Suridom, director of the Philippine Institute of Volcanology and Seismology, told Reuters. It is unique because it is a volcano in the volcano. The agency raised the volcano’s danger level to level 4, which is “a dangerous explosive eruption that could occur within hours to days.”

About 8,000 residents of the volcano and other high-risk towns have been evacuated and about 6,000 had been evacuated from the danger zone as of Sunday evening, the Philippine National Disaster Reduction Administration told reporters. The United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA) says more than 450,000 people are expected to live in dangerous areas within 14 km of Mount Tal.

It was not immediately clear how much economic impact the eruption could have, but Philippine stocks and foreign exchange trading were suspended on Monday.

January is the peak tourist season in the Philippines, with 730,000 visitors visiting Manila in January 2018. The tourist resort of Boracay, which has just reopened for a year, was also affected by the eruption. Bloomberg expects the eruption to take a heavy toll on the Philippines’ tourism industry.

Attracting tourists is a key focus of boosting growth in the Philippines as the economy faces its slowest pace of growth since 2011. In 2018, tourism accounted for 12.7 per cent of the Philippines’ gross domestic product.

Stocks are Asia’s worst performers

Just two weeks into the New Year, the Philippine stock market was the worst performer among Asia’s major stock markets, with the withdrawal of overseas funds reminiscent of January 2008. At the time, fears of a US recession rattled global stock markets and dragged Manila into a bear market. Last year, the Philippine stock market was one of the asian region’s laggards.

Rachelle Cruz, an analyst at AP Securities, said that while the Philippines’ economic growth is expected to accelerate, expectations of a weaker peso and concerns about regulatory risks arising from a contract dispute between the government and Manila Water could discourage investors from buying Philippine stocks. Another factor, she says, is the question of whether corporate tax cuts and incentives will be passed.

Flue Year snofar: Volcanic eruption Asia's worst stock market currency is being seen

The Philippine Stock Exchange Index is down 0.5 per cent this year after rising 4.7 per cent in 2019 (the region’s benchmark index is up 16 per cent) as overseas funds withdraw $44m. This is one of the largest outflows from Asia. Foreign investors sold nearly $100m during a similar period in early 2008, but the situation was that the index was about to fall into a bear market.

Foreign investors have withdrawn more than $1.3bn from Philippine equity funds in the past two years. But First Metro Investment Corp. “Capital outflows are not a reflection of a deterioration in fundamentals, but the end of a rebalancing of the portfolio,” said analyst Cristina Ulang. Economic growth and corporate earnings will be stronger. Once again, we are among the fastest growing markets in Asia. “

Currency is being shorted by investment banks

Goldman Sachs said the philippine peso would lag behind other currencies as the country’s current account deficit widened. Goldman Sachs strategists such as Zach Pandl wrote in a January 10 report that the Southeast Asian nation’s currency could weaken this year, given the central bank’s dove-like tendencies and increased fiscal spending.

The bank recommended shorting the peso against the offshore yuan, “and we expect that the overall pace of public infrastructure spending and private investment will lead to a deterioration in the current account, with the peso lagging behind non-Japanese Asian currencies under special factors,” Goldman Sachs said in a report released before the eruption of the Tar volcano in the Philippines. It was not immediately clear how much impact the eruption would have on the Philippine economy, which was closed on Monday.

The Central Bank of the Philippines expects the current account gap to widen from $5.6 billion in 2019 to $8.4 billion this year. The peso has barely budued against the dollar since the start of the year, and tensions between the U.S. and Iran have triggered a surge in crude oil prices, spurring investors to sell the oil-importing nation’s currency.

The peso briefly fell to 51.32 against the dollar on January 6, its lowest level since October 25, but has since recovered, closing at 50.66 on Friday. On the other hand, the offshore renminbi and the Indonesian rupee are the best performing currencies in Asia this year.

Flue Year snofar: Volcanic eruption Asia's worst stock market currency is being seen

The yuan is seen as Asia’s leader, and its rally will affect other Asian currencies.