The stock market is expected to trade with more caution this week after the Bangko Sentral ng Pilipinas undertook tightening moves last week, with the 7,200 mark seen as a crucial barrier to watch.
Last week, the Philippine Stock Exchange index gave up 61.7 points or, 0.85 percent, to close at 7,201.88 on Friday as investors pocketed gains.
Nevertheless, the index is only about 200 basis points away from the all time high of 7,400, which was last hit in 2013 before the US Federal Reserve announced the tapering of its monetary stimulus.
Last Thursday, the BSP raised both the overnight policy rates and special deposit account rates by 25 basis points.
“The interest rate hike by the BSP is seen as bearish to equities in general, negatively affecting stock market liquidity and attractiveness. The rate increase also negatively affects both the top-line and bottom-line of businesses. A tighter monetary policy discourages consumer spending, driving sales lower, which affects a company’s top-line. It also affects a company’s earnings through higher interest expense. As such, we might expect a pullback in the succeeding weeks as the effect of higher lending rates are priced in,” AB Capital Securities analyst Alexander Adrian Tiu said in a research paper.
On a technical basis, he said the major support level at 7,200 managed to hold for three consecutive trading sessions.
Banco de Oro Unibank chief strategist Jonathan Ravelas said the pause seen last week was due to the market already hitting overbought levels.
“So long as 7,200 holds, continue to expect a test of the 7,400 levels. Should the index break below 7,200, a retest of the 7,000 levels could occur,” he said.
AB Capital’s Tiu said most of the sectoral subindices fell last week with the exception of the financials sector, which posted gains of 1.41 percent.
“Banks are seen to benefit the most from the hike in benchmark rates as it allows them to charge higher rates on loans,” he said.
Tiu also noted that the US dollar continued its rally against other currencies with the US Dollar Index trading near its 52-week high as economic releases pointed to a faster recovery. Doris C. Dumlao