Local stocks are seen firming up this week as investors factor in the country’s better economic fundamentals amid the turmoil in emerging markets.
Last week, the main-share Philippine Stock Exchange index (PSEi) declined by 150.31 points or 2.43 percent to close at 6,041.19 on Thursday. Financial markets were closed Friday in celebration of the Chinese Lunar Year turnover.
The main catalyst for last week’s downturn was the US Federal Reserve’s decision to
proceed with another $10-billion cut in its monthly bond-buying operations. The better-than-expected fourth quarter gross domestic product (GDP) growth of 6.5 percent, however, tempered the selldown on Thursday.
“Chartwise, the index retreated after approaching the 6,200 resistance level. Despite the pullback, however, the bias is still for the index to test the 6,300 mark,” said Banco de Oro Unibank strategist Jonathan Ravelas.
Near-term support for the PSEi emerged at the 5,984 level, he said.
Gregg Adrian Ilag, an analyst at AB Capital Securities, said the recent pullback was an opportunity to buy individual issues with strong earnings growth and valuation upsides.
AB Capital Securities expects the market to display gains this week, driven by positive consensus revisions to 2014 GDP estimate after the strong full-year performance for 2013.
At last week’s close, Ilag said the PSEi was trading at 15.85 times projected earnings for 2014, or still at a higher multiple compared to the average price to earnings ratio of 13.05x among regional peers.
“We expect valuation multiples to remain elevated due to robust domestic liquidity and high GDP growth rates. However, slower earnings growth from the PSEi will keep re-rating limited. From a technical perspective, we view the PSEi’s close above 6,000 as a positive indication of a strong support level,” Ilag said.
Last week’s close above 6,000 was seen by AB Capital Securities as necessary to keep the ascending triangle formation valid. This formation has a short-term target of 6,300.
Ilag noted that among the key economic data to watch this week from the US included the jobless rate and the monthly non-farm payrolls. “Investors will likely speculate and change their view on the pace of QE (quantitative easing) tapering if payrolls do not improve significantly from the December results, which was the lowest since May 2011,” Ilag said. Doris C. Dumlao