Philippine stocks seen to rise further

Local stocks may attempt to test more record highs this week on the back of strong liquidity flows and upbeat overseas markets but some investors are praying for a bigger correction before increasing their position.

Last week, the Philippine Stock Exchange index (PSEi) resumed its upswing, gaining 191 points, or 2.88 percent, to close at 6,833.77. A new intraday peak was hit at 6,859.79 on Friday.

Analysts said among the key events to watch out for this week are the recomposition of the PSEi (which takes effect Monday), which will include Bloomberry Resorts Corp. in the roster, replacing SM Development Corp. Another is the March 14 policy-rate setting of the Bangko Sentral ng Pilipinas, during which the market keenly awaits a decision on whether

there will be a further reduction in the interest rates on special deposit accounts (SDAs).

“We think PSEi would go higher this week as liquidity remains abundant and corporate earnings are decent,” said Gregg Adrian Ilag, an analyst at AB Capital Securities.

He said the strategy would be to spot opportunities particularly on companies that benefit from the secular consumption growth, cheap funding costs, and infrastructure rollout. The analyst said the BSP would likely maintain key policy rates as inflation remains within the target range.

“Valuation multiples continue to be amplified by liquidity, triggering concerns over the PSEi’s ability in sustaining the unprecedented highs,” Ilag said, noting that as of Friday, the PSEi was trading at 19.6 times projected earnings for 2013. “However, earnings yield is at 5.09 percent, which is still higher than the bond yields. We think these falling bond yields are providing room for PSEi’s re-rating.”

From the technical standpoint, Ilag said sustaining rallies might prove to be difficult. Immediate resistance is seen at 6,900 and support at 6,800. “Chartwise, the market appears to be consolidating near the highs, ranging from 6,600 to as high as the 6,835.86 levels. Clearly, the market momentum is stalling and supports that the market is indeed ripe for a much larger correction,” said Banco de Oro Unibank Jonathan Ravelas.

A clear break below the 6,600 levels will put the 6,550-6,560 levels to a test, Ravelas said. “If broken we could see a test of the 6,400-6,500 levels. Failure to break below the 6,600 level will retest the 6,800 levels,” he said.

Freya May Natividad, an analyst at 2TradeAsia.com, said investors must seize any weakness to position on stocks with good dividend yields and growth stories. “Property is evolving within tourism and BPO (business process outsourcing) migration opportunities, while banks are gearing toward higher-margin micro-financing,” she said.—Doris C. Dumlao

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