Cautious trading seen

The local stock market is seen remaining jittery over US fiscal and monetary affairs this week, which ushers in the last quarter of 2013.

Last week, the Philippine Stock Exchange index gave up 44.64 points or 0.7 percent to close at 6,379.81 on Friday.

Gregg Adrian Ilag, an analyst at AB Capital Securities, said that among the events happening this week include the release of the US nonfarm payrolls and the speech of Federal Reserve Chair Ben Bernanke. “Headlines regarding the US debt ceiling will remain a key factor in driving investor sentiment,” Ilag said, adding that the strategy should be to sell on rallies.

Banco de Oro Unibank strategist Jonathan Ravelas said the local market would “likely follow Wall Street’s lead as the  ongoing debate in the US with regard to its budget and debt ceiling will remain a concern for investors.”

Chartwise, Ravelas noted that the index had managed to stay above 6,000, thus breaking the short-term downtrend. “As long as the strong support of 6,350 holds, near-term bias is to try the 6,500 levels. If the 6,350 level fails to contain the market, expect a retest of the 6,000,” he said.

AB Capital’s Ilag noted that Democrats and Republicans continued to disagree on how to raise the debt limit even as the failure to do so would lead to a downgrade in the US credit rating. “Investors are also concerned over the probability of a partial government shutdown by Oct. 1 similar to what happened in 1995 and 1996. Republicans have voted to remove the funding of the affordable care act in the proposed government spending and Democrats are unlikely to agree with this vote. If both sides don’t agree by Oct. 1, the government will lose its authority to spend money, leading to a partial shutdown,” he said.

Ilag said the PSEi was currently trading at 16.79x 2013 P/E (price to earnings) and 15.95x 2014 P/E compared to a peer median of 14.87x 2013 and 13.07x 2014. The premium is justified by the favorable economic backdrop and strong market growth in earnings per share (EPS), he said.

“The fourth quarter is seasonally strong for equities. However, we think an upside remains limited given premium valuations and slower EPS revision from consensus,” Ilag said. Doris C. Dumlao