World events to dictate stock play this week

Local stocks may remain a hostage of external developments this week even after the United States narrowly beat a deadline to raise its debt ceiling and avoid a default.

Last week, the main-share Philippine Stock Exchange rose for four straight sessions to gain a total of 1.8 percent, finishing at 6,607.83 on Friday.

AB Capital Securities analyst Gregg Adrian Ilag said foreign headlines would continue to drive the index this week as investors anticipate the effect of the partial shutdown of the US government on the planned tapering of the Fed’s easy money policies.

Ilag noted that investors are fixated on the timing of the tapering. Their concern over the US debt ceiling has taken a back seat for now.

Ilag reported that the PSEi was trading at 17.39x 2013 price to earnings (P/E) and 16.52x 2014 P/E, a premium compared to a peer median of 14.96x 2013 and 13.14x 2014.

“We continue to think that the upside of the PSEi remains limited, given that the liquidity of the market will be reduced by  the successive IPOs (initial public offerings) and the slower momentum of corporate earnings growth,” Ilag said.

On a technical note, Ilag said that the PSEi maintained an upward trend from the time marked a low of 5,562. Still, he added, stocks showed signs of being overbought, while volumes on the rallies remained weak.

Failure to break the 6,700 resistance may cause the PSEi to slide back to 6,280, Ilag explained.

“We remain neutral on the PSEi given that risk-reward remains unattractive at current levels,” he said.

Among the stocks AB Capital considers attractive in terms of growth profile and better upside to valuations relative to the broader market are Petron, Metrobank and Belle.

Jonathan Ravelas, chief strategist at Banco de Oro Unibank, said that while last week’s budget deal in the US was seen to be a temporary solution—as it would fund the US government only until Jan. 15, 2014—it nevertheless allowed investors to heave a sigh of relief.

“In addition, speculations grew that the Federal Reserve will maintain the pace of its monetary stimulus,” Ravelas said.

With the PSEi now above the 6,500 mark, Ravelas said, the index may soon test the 6,700-6,800 level.

Failure to break that level may result in a retest toward the 6,350  mark, Ravelas said.  Doris C. Dumlao