Local stocks are seen remaining vulnerable to global market volatility this week but there are signs of improving domestic investor sentiment.
Last week, the Philippine Stock Exchange index (PSEi) surged 102.52 points or 1.71 percent to close at 6,113.66 on Friday.
“We expect the market to trade sideways next week given that near-term catalysts will depend on global market sentiment. We would wait for pullbacks to attractive support levels before positioning on our preferred sectors for a better risk/reward tradeoff,” AB Capital Securities analyst Gregg Adrian Ilag said.
For his part, Banco de Oro Unibank chief strategist Jonathan Ravelas said the recent market run-up had come from investors positioning their portfolio ahead of earnings report, a message perceived to be positive by the market from new US Fed Chair Janet Yellen and upbeat economic data in China.
“Foreign investors were net buyers of Philippine stocks in the last six trading days, indicating that funds are slowly creeping back and a semblance of possible
reversal is at hand,” Ravelas said.
Chart-wise, Ravelas noted that the index managed to stay above 6,000 but was encountering resistance at the 6,100-6,150 level. “A break above these levels could signal tests toward 6,300,” he said.
Global market sentiment this week would be influenced by Yellen’s testimony and the release of the Federal Open Market Committee meeting minutes, Ilag said.
During her first speech to Congress last week as the new Fed chair, Yellen said the incremental cuts to stimulus were based on the forecast of the labor market and inflation, adding that the tapering of bond purchases was not on a preset course.
“Investors will look for hints to the future changes in monetary policy, which should drive short-term market returns,” Ilag said.
Ilag said the PSEi was now trading at 16.45x expected earnings this year or a premium to median price to earnings (P/E) ratio of 13.31x among regional peers.
“We find premium valuations susceptible to externally driven selloffs and slower earnings growth,” Ilag said.
PSEi support was seen by AB Capital at 6,050 and resistance at 6,185. Doris C. Dumlao