Local investors brace for more market volatility

The US Federal Reserve’s decision to defer any interest rate increase has boosted local stocks but investors are bracing for further global market volatility as the liftoff waiting game is prolonged.

The Philippine Stock Exchange index (PSEi) initially rallied to retest the 7,200 level Friday, the day after the much-anticipated US Federal Open Market Committee (FOMC) meeting, but pared gains at the close. The local stock barometer ended the trading session 7.92 points or 0.11-percent higher to close at 7,131.91.

Local stocks have risen in the past five sessions ahead of the FOMC meeting as the market had correctly bet that the US central bank’s widely anticipated interest rate increase would not happen at the September meeting.

But any relief coming from the US Fed’s decision not to raise rates would only be temporary, said Michaelangelo Oyson, chief executive of BPI Securities. “The timing of the Fed rate hike will continue to be a source of uncertainty for the market.”

“The Fed has shown it was sensitive to international developments given significant capital outflows from emerging markets. It appears that the Fed is aware that international developments could have negative implications on the US domestic economy. Having said that, a Fed liftoff this year is still on the table. In the meantime, the market will continue to trade within a trading range and market upside could be capped,” Oyson said.

On Friday, the interest rate-sensitive property counter led the local stock market higher with its 2.75-percent gain. The financial (+0.35 percent) and mining/oil counters (+0.7 percent) increased at a modest pace. On the other hand, the industrial, holding firm and services counters slipped.

Value turnover for the day amounted to P10 billion. There were 100 advancers that edged out 80 decliners while 33 stocks were unchanged.

In a research note, Citigroup said the FOMC decision to keep interest rates unchanged revealed a new monetary policy rule in place—one that amplified the importance of international and financial market developments. The research note said it did not imagine that market turbulence associated with emerging markets, referring to the global meltdown induced by the stock market rout in China, would be the underlying rationale for a delay.

The last time international market turbulence halted a US Fed tightening cycle was in 1998—when systemic risks abounded, the Citi research noted.

“China’s growth uncertainty will not diminish quickly, and the EM (emerging market) fallout will take time to assess. China has no track record of successfully dealing with a structural slowdown, nor a track record of not exacerbating such a well-anticipated economic weakness. Also, excess commodity supply conditions depressing US inflation likely will not dissipate quickly,” the Citi research note said, suggesting that the liftoff might slide to 2016.

European bank ABN Amro said that while the FOMC suggested a “dovish” tone, the signal was for a likely rate increase by December but noted concerns about the global economy could delay such move to 2016.

Markets were volatile following the decision, but overall outcomes were supportive for bonds and gold, but negative for the dollar, as markets scaled back rate increase expectations, ABN Amro said.

At the local market, the PSEi’s gains were led by SM Prime, which rose 6.43 percent. The property giant announced plans to issue up to P20 billion in retail bonds.

ALI, AC, BPI and BDO all rose more than1 percent. GTCAP, URC, Metrobank and Globe also contributed gains.

Outside of the PSEi, shares of Ionics continued to sizzle, rising by 49.68 percent, on brighter earnings prospects for the company alongside a speculative play on undervaluation versus book value. The local company denied an earlier announcement by Canadian firm LeoNovus Inc. to roll out its geo-distributed cloud in the Philippines.

On the other hand, SMIC and PLDT both tumbled by more than 2 percent while AP and AEV lost 1 percent. EDC and JG Summit also faltered.

Non-PSEi banking stocks PNB and RCBC both declined by more than 2 percent.