Cautious trading seen this week

Local stocks are seen to trade with caution this week as investors tune in to the nearing US elections amid the local corporate earnings season.

The market is set to reopen today after a long holiday break. Last week, the main-share Philippine Stock Exchange index (PSEi) lost 245.42 points or 3.2 percent to close on Friday at 7,404.80.

“The market will likely follow the  lead of the US market as it prices in expectations of possible scenarios in the US elections. Having said that, there is downside risk to the Philippine market as it prices in the risk of outflows from emerging markets as a result of a possible hike in US Federal Reserve rate at the end of this year,” said Michaelangelo Oyson, president of BPI Securities.

Oyson said global portfolio reallocation decisions would continue to set the direction of the local market especially in the absence of fresh exciting news from corporate Philippines.

“The local market will likely give up some of the gains this year that resulted from global reallocation of portfolios toward emerging markets and eventually find footing at lower valuations that are bottom up driven and supported by corporate earnings,” Oyson said.

“We are in a period of consolidation and soul-searching for the fair value of the market based on fundamentals and less on flows,” he added.

In their joint publication “The Market Call” for October, First Metro Investment Corp. (FMIC) and University of Asia & the Pacific (UA&P) said strong economic growth had already been priced in by investors.

“Unless we see robust EPS (earnings per share) growth, the market appears to lack re-rating catalysts,” FMIC-UA&P said.

“With external risks weighing down on investors’ sentiment, the market could remain on heightened volatility toward year-end,” the paper said.

“On the local front, mixed political signals (causing some confusion on foreign and trade policies), together with regulatory changes and sweeping tax reforms, while welcome, are uncertainties that investors will have to navigate going into 2017,” FMIC-UA&P said.