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Upgrading to 7,000 or not

/ 12:02 AM August 19, 2014

It looks like the market is about to be upgraded to 7,000.

Looking back, trading appeared slow and easy as usual from Monday to Wednesday but picked up on Thursday as it opened higher by 70.97 points at 7,057.21.

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The market proceeded to hit the session’s high of 7,093.06 and closed lower at 7,061.00, after it recovered from its low for the day of 7,053.12.

This strong performance of the market could be attributed to the significant increase in total value turnover for the day.  Total transactions amounted to P11.29 billion which, if we compare to the market’s current normal, would be at least about 30.0 percent more.

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Notably, total volume for the day also increased to about twice of previous levels.  This meant that trading widened to include speculative plays on smaller cap stocks.

On Friday, the market opened just about where it closed on Thursday. To be exact, it opened at 7,061.27.

Significantly, total volume returned to the more normal level of 1.96 billion shares along with total value turnover, which stayed at the regular amount of P9 billion.

The market closed with a daily loss of 52.49 points or 0.74 percent as it settled at 7,008.51, a hairline higher from the day’s low of 7,002.48.

Also, the market appeared to have been propelled more by selling than buying initiatives last Friday.

New thinking

Notwithstanding the above mentioned apparent nature of trading of the market last Friday, some market observers wanted to think things are possibly changing this time.

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For instance, foreign investors were net sellers in three trading sessions last week, yet two out of the three sessions ended on positive ground.

In particular, the market ended last Tuesday with a daily gain of 26.83 points or 0.39 percent.  This was amid the fact that foreign transactions amounted to P3.12 billion of buying and P3.15 billion of selling.

Again, the market ended on positive ground even if foreign investors were net sellers the following day, Wednesday.  Foreign transactions amounted to P4.32 billion buying and P4.54 billion selling, ending with net sellers of P220 million.

As explained, this is happening because local liquidity is growing or is actually bigger than is thought and local market investors are turning bullish. To their observation, these have been happening in the last three weeks or so.

One reason why local investors are said to be more aggressive and bullish is the upcoming report on the gross domestic product (GDP) of the Philippines for the second quarter. It is expected to be issued this week.

Philippine economic growth is expected to have recovered in the second quarter. It will be in contrast to the disappointing first quarter performance of only 5.7 percent.

According to speculative talks, the Philippine economy has improved in the second quarter despite the natural disaster brought on by Typhoon “Glenda” and that it has moved back—astonishingly—to about 6.5 percent.

Comments indicate that there are very few signs that could possibly drive the domestic economy to slow down.  Among others, consumer confidence is said to be high. Automobile sales are elevated and unemployment is “range-bound.” In addition, merchandise exports are expected to further rise and the service sector to remain strong.

On top of all this, private consumption and investment is expected to stay strong. The country’s GDP is expected to further grow in the following two quarters and bring full-growth factor to a low of 6.2 percent and—following more optimistic forecast—will still hit the high of 7.5 percent.

But inflationary pressures have also been on the rise along with strong domestic demand.  They serve as serious obstacles to further growth.

Bottom line spin

More than this threat to the local economy, there are other serious factors—both economic and political—from the outside that are threatening to change the current positive outlook of the local market.  These factors are now threatening the world economy anew.

First, Europe is at the brink of another recession, and its adverse effects we knew all too well. Second, Islamic militants have seized Iraqi territories and give rise to a new regime that could tilt the balance of power in the Middle East and the whole world.

Third, we have Russian troops massed on the Ukraine border, and the resulting sanctions are disrupting trade.  Fourth, we have an Ebola outbreak in Africa and the absence of a sure cure has put every country at risk anew.  Fifth, and contributing to the overall market gloom, is Israel’s war in Gaza.

These factors, while they have been invariably shrugged off as of last week, may easily lead the market back to its observed tendency to take profits after every little gain it made in the last two months or so.

Along with how the trading turned out last Friday—where the market ended as usual on negative territory after foreign investors ended as net sellers—the market may have to be upgraded to 7,000 and above in the coming days.

(The writer is a licensed stockbroker of Eagle Equities, Inc..  You may reach the Market Rider at [email protected], [email protected] .com or at www.kapitaltek.com)

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