SINGAPORE (BLOOMBERG, REUTERS) - The Philippines halted stock, bond and currency trading until further notice, becoming the first country to shut financial markets in response to the widening coronavirus pandemic.
The closures take effect on Tuesday (March 17), according to statements from the Philippine Stock Exchange and the Bankers Association of the Philippines. The moves follow President Rodrigo Duterte's decision on Monday to widen a month-long lockdown of the capital region to cover the country's main Luzon island, home to at least 57 million people. The virus has infected at least 140 people in the Philippines and killed a dozen.
Global markets are in meltdown as the pandemic spreads, with roughly US$14 trillion (S$19.9 trillion) in shareholder value erased and even safe assets such as gold have been sold to cover losses. The Philippines benchmark index fell 8 per cent on Monday and is down 20 per cent for March so far, already its worst since October 2008.
A US-listed exchange-traded fund that tracks the Philippine market fell by a record 19.5 per cent on Monday after the bourse announced it was shutting.
"This restricts exit the mechanism so it won't be taken kindly by investors who don't like their flow of funds constrained," said Manny Cruz, strategist at Papa Securities. "What the market would do when trading resumes depends on the state of global markets. We will see a sharp sell-off if the global weakness continues and a sharp rebound should there be a recovery worldwide."
Shutting markets during times of crisis is extremely rare but not without precedent. America's stock market closed for almost a week after the 9/11 terrorist attacks in 2001, while Hong Kong halted trading in the wake of the Black Monday crash in 1987. Greece shut its stock market for about five weeks in 2015.
A survey of international investors conducted by the Hong Kong stock exchange in December 1987 found unanimously that the closure had negatively affected the exchange's international reputation and had eroded confidence in the Hong Kong market, at least in the short term.
While some commentators have argued that countries including the US should consider temporary market closures, exchanges and regulators have mostly downplayed or rejected the idea. Bourses in Korea and Indonesia said they have no plans to shut trading, while Australia's exchange said it and market regulators "have a range of measures, some of which have already been taken, to maintain the market's orderliness and resilience."
US Securities and Exchange Commission Chairman Jay Clayton said in an interview on CNBC on Monday that stock markets should continue to operate. Nasdaq Inc. CEO Adena Friedman told Bloomberg TV that "it's much better" to keep the markets open, citing companies' capital-raising needs and saying "pent-up issues" can occur with closures. The New York Stock Exchange sent a note after-hours Monday saying all NYSE Group markets including trading floors would "continue to operate normally tomorrow."
Here is what market participants are saying about the exchange halt:
Tomo Kinoshita, global market strategist at Invesco Asset Management
"As fewer people are able to participate in the markets, it does expose the market to more volatility. It's a tough situation, and of course it's not desirable. But as a short-term measure it may make sense."
Jingyi Pan, a market strategist at IG Asia Pte in Singapore
"Given that sentiment is a strong driver for equities at present, one can look at the Chinese market and the extended Lunar New Year holidays as a comparison. The latest shutdown comes in tandem with the lockdown of the capital region and could aid in containment efforts in the short term. If the situation improves, this could work out positively for the market and reduce the volatility in the short term as it did China even if the market returns to some adjustments initially. The drawback would be if the situation continues to worsen, that could see to further panic selling when the market reopens, though current trends does suggest increased social distancing does help with the coronavirus situation."
Justin Tang, head of Asian research at United First Partners in Singapore
"Think of it as a circuit breaker on steroids. There is rampant fear at the moment as evidenced by the unprecedented volatility. The enemy is ourselves in that we are really reacting to a loss of control over the situation given that no one really knows how far this can go - just as it was on 9/11. The suspension will hurt those who rely on trading for an income but will provide time for participants to calm down and evaluate the situation rationally. A weekend is hardly sufficient for that."
Jonathan Ravelas, strategist at BDO Unibank Inc.
"I think it is smart move because the market is already in hysteria. Sometime taking a step back allows investors to rethink their position and digest the flood of information out there. This is a health crisis we are facing and it seems the market reaction has been too exaggerated."