Tuesday 17th March 2020
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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 controversial move comes amid mounting speculation that other countries may take similar measures as stocks around the world plunge on fears of a global recession. Markets including the New York Stock Exchange have issued statements this week saying they plan to stay open.
The Philippine closure takes effect Tuesday, according to the nation’s stock exchange and the Bankers Association of the Philippines. The trading halts 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.
Philippine equities have tumbled more than 30% this year, among the biggest declines in Asia. A U.S.-listed exchange-traded fund that tracks the Philippine market sank by a record 19.5% 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 selloff 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 U.S. 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.”
U.S. Securities and Exchange Commission Chairman Jay Clayton said in an interview on CNBC 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.”
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