Recession fears to weigh down Philippine stocks

MANILA, Philippines—Rising fears over another US recession are widely expected to weigh down local equities this week but a local mining play may continue to provide some cushion given the unprecedented surge in gold prices.

Thanks to bargain-hunters, the main-share Philippine Stock Exchange index ended last week higher by 0.42 percent to close at 4,339.90 on Friday.

Local stockbrokerage DA Market Securities said that market volatility might continue this week as the possibility of a recession in the US and Europe plagued markets. “Local stocks that will benefit from the current climate are still the gold mining stocks due to rising gold prices,” it said.

DA Market Securities sees a support for the PSEi at 4,250 and another major barrier to a downside at the recent low of 4,150. “Market’s seesawing behavior is but characteristic of investor uncertainty,” the brokerage said.

In this kind of environment, DA Market Securities said mining stocks, particularly gold-related, remained to be a “safe haven,” noting that the following factors were contributing to the bullish sentiment on gold:

1.) A higher gold price which encourage current exploration and development;

2.) The structural deficit in gold on the back of central banks shifting dependence from unstable currencies and becoming net buyers of gold; and

3.) Rising demand in China and India for the metal.

Gold price rallied by another 6.3 percent last week to close at a record $1,852 an ounce.

Banco de Oro Unibank chief strategist Jonathan Ravelas said the current local stock market resilience to wild market swings globally was supported by the low interest-rate environment that, in turn, was fueling business expansion. He said the first semester local corporate results, which showed an average growth of 13 percent in income, were also encouraging investors.

Chart-wise, he said last week’s close implied that the rally toward the 4,400 level was viewed as a mere technical rebound. “The next move could carry the market barometer to test the 4,050-4,150 levels in the near term,” Ravelas said. “Only a move above the 4,400 levels could shift the near-term bearish sentiment into the neutral to bullish stance.”

On Friday, fears of a recession again gripped Wall Street. The Dow Jones industrial index fell 172.93 points to close at 10,817.65. The broader S&P 500 and the tech-heavy Nasdaq indices likewise lost 1.5 percent and 1.62 percent, respectively.