After a strong start for the year, the local stock market is seen to temper gains this week while awaiting fresh clues from the US Federal Reserve on monetary policy.
Last week, the Philippine Stock Exchange index (PSEi) surged by 5.96 percent to close at 7,248.20 on strong growth prospects for the Philippines this 2017.
BDO Unibank chief strategist Jonathan Ravelas said last week’s rally was driven by prospects that the Philippine gross domestic product (GDP) growth would outperform Southeast Asian peers this year.
“Chartwise, the week’s close at 7,248.20 suggests the market to try the 7,500 levels,” said Ravelas. “A break above the 7,500 levels will call the bulls back to play.”
Joseph Roxas, president of Eagle Equities, said the PSEi might have to correct this week after last week’s surge. “But it will only be a short dip,” he said. Support levels are seen at 7,000 and further at 6,800.
AB Capital Securities said that with strong foreign buying seen in the last six trading sessions, the sharp uptrend channel could signify that the PSEi had bottomed at the 6,500 level in late December.
“With foreign investors as net buyers, this possibly suggests that the fallout post-Fed rate hike has waned and that the market has fully priced this in,” AB Capital said in a note to clients. Last week, net foreign buying amounted to P1.75 billion, improving from the previous week’s P467 million.
The Fed had indicated that US interest rates might be further raised three times this year.
“Investors may also be positioning ahead of strong full-year corporate earnings as well as a solid full-year GDP growth rate that would place the Philippines ahead of its regional peers,” AB Capital said.
With the strong buying pressure last week, AB Capital said the market was now trading at a price-to-earnings (P/E) ratio of 17.3x, which means investors are paying 17.3 times the kind of money they expect to make.
AB Capital said another technical indicator—the relative strength index (RSI) at 65.9—suggested that the market was reaching “overbought” levels and a technical pullback might be expected in the near term.
This week, AB Capital said investors would be tracking China inflation and production data, US employment data and Fed Chair Janet Yellen’s speech next Thursday for guidance on interest rate increases this year.
This week, the brokerage said: “We can expect the market’s gains to wane, though the Fed speech could be a catalyst or a headwind, depending on their dovish or hawkish tone.”