The local stock index may firm up this week as the freefall of the last five weeks may attract bargain-hunting.
Last week, the main-share Philippine Stock Exchange index lost 60.09 points, or nearly 1 percent, to end at 6,182.17 on Friday due to the plan of the US Federal Reserve to end easy money policy.
“Chartwise, a bounce towards the 6,500 level did occur early on during the [last] trading week. But given the market’s inability to stay above the said levels, [it] puts the 6,000 level at risk,” said Banco de Oro Unibank chief strategist Jonathan Ravelas.
“However, bear in mind that the market has bled for the last five
weeks and appear to be extremely oversold, this increases the probability that the said level may hold,” he explained.
But if the 6,000 level were to break down, losses toward the 5,800 level may be expected, Ravelas said.
This may “give the bears the signal to cross the street,” he added.
A stock market is said to turn into a bear market once the key index falls by 20 percent from the peak.
The stock market peaked at around 7,400 in mid-May.
Apart from jitters over the US Fed’s monetary policy, Ravelas said other factors that exacerbated the market’s decline was the decision by some foreign funds to unload their holdings in the region, as well as issues of overvaluation.
“The sell-off in the global equity markets has shaken investors’ confidence, and [serves as] a reminder on how quickly liquidity is sapped when market sentiment turns sour. Also, it reminds us that no market is impervious to corrections. While macro and micro backdrop remain constructive, they have been priced in,” according to a joint research publication by First Metro Investment Corp. and University of Asia-Pacific.
Lack of new positive catalysts in the next three to six months will likely lead the market to establish fair value price-to-earnings (P/E) ratio of between 17x and 19x for the next 12 months, FMIC-UA&P wrote in the June issue of The Market Call.
“Hence, we still expect the market to move lower in the interim. This should provide an attractive opportunity to increase exposure in Philippine equities,” according to the publication.
A P/E ratio of 17x means that investors are paying 17 times the amount of money they expect to make in the market. Doris C. Dumlao