PSEi climbs to 6,900 level ahead of US Fed rate hike decision

The local stock barometer climbed back to the 6,900 level Wednesday ahead of the closely watched US Federal Reserve meeting, during which investors have priced in a decision to raise interest rates.

The main-share Philippine Stock Exchange index (PSEi) gained 47.43 points or 0.69 percent to close at 6,928.34, recovering some of the heavy losses incurred on Monday. The index has firmed up in the last two trading days.

Wednesday, trading sentiment was mixed across regional markets as investors awaited the conclusion of the two-day Federal Open Market Committee (FOMC) meeting Wednesday night (Manila time).

“Our research team looked into 20 years’ worth of data to see how the PSEi performed around the FOMC meeting,” BPI Securities president Michaelangelo Oyson said.

He said there was usually slightly positive movement on the PSEi the day after the Fed rate increase. “That is, the data indicate that the market generally prices in the rate hike ahead of time,” Oyson said. “Rate hike or no rate hike, it’s slightly positive on the market.”

Local stockbrokerage Papa Securities said investors had gone “bottom-fishing” ahead of the FOMC decision.

Based on those two selling cycles related the US taper tantrum in the past, Papa Securities said net foreign selling usually reversed once the market recovered to 14.5x to 15x price to earnings (P/E) ratio. This ratio means that investors are paying 14.5 to 15 times the kind of money they expect to make from their shares.

“Below that level, the market is too cheap to ignore given our fundamentals and growth prospects, especially with our upward-revised economic outlook,” Papa Securities said. “We feel these levels could trigger foreign buyers to come in, especially those who were concerned about valuations compared to the region as that level would already bring us in line with both Indonesia and India.”

Papa Securities added that the market would typically recover a bit before foreign funds turn into net buyers. It added that foreign fund flows seemed to be lagging indicators of market bottoms. “To be fair, plenty of foreign funds buy at the bottom; however, on balance, foreign funds were still net sellers until a month after valuations bottomed,” it said.

Luis Gerardo Limlingan, managing director at Regina Capital Development, said the local bourse had also taken its cue from upbeat trading in Wall Street. “Meanwhile in Asia, confidence among Japan’s large manufacturers improved for the first time since June last year as the fall in the yen improved prospects for company earnings,” he said.

“There is still around $200 million left or P10 billion of net foreign fund buying since investors started buying into the optimism from the Philippine election results. We have said before how we think the market is in a longer-term selling cycle, which could last for another five months or so. Having said that, there is hope that this kind of accelerated foreign selling will ease below a level of index valuation. We’ve seen how, in the past, foreign selling seems to reverse when the market goes below a certain P/E,” Papa Securities said.

All counters firmed up Wednesday, led by the holding firms and mining/oil counters, which both rose more than 1 percent. Total value turnover amounted to P5.85 billion. There were 97 advancers that edged out 73 decliners while 44 stocks were unchanged.