Cautious trading seen to continue

Local stocks are seen continuing to trade with caution this week while investors across the globe assess how effective US President Trump will be in passing a key healthcare legislation.

Last week, the main-share Philippine Stock Exchange index fell by 1.03 percent, weighed down by the weak sentiment in Wall Street.

BDO Unibank chief strategist Jonathan Ravelas said investors were recalibrating expectations to reflect the reality that President Trump’s pro-growth agenda would not push through overnight, inducing profit-taking among local investors.

“Chartwise, the week’s close at 7,269.62 continues to highlight expectations that the market will remain range bound between the 7,000–7,400 levels in the near term. A break below the 7,150 levels suggests further weakness toward the 7,000 levels,” Ravelas said.

“Only a break above the 7,500 levels could call the bulls back into play,” he said.

In their latest joint publication, First Metro Investments Corp. and University of Asia & the Pacific, said no positive catalysts for local equities were in sight for the next two months.

“If at all, the headwinds appear daunting. These include: The strengthening of US economy and dollar and its negative effect on the peso; and the economic fundamentals on the external side show some cracks as the current account looks headed toward a deficit as a result of years of an overvalued currency,” FMIC-UA&P said.

The strategy should thus be to remain patient and search for value stocks—such as consumer, banking and energy sectors—and take position on market downturns, FMIC-UA&P said.

In a research note on Friday, Citigroup said the delay in calling a vote on the American Healthcare Act (AHCA) bill was keeping sentiment on edge.

“Investors are looking to this vote to assess the likelihood of a lame-duck Trump administration. If the health care vote passes, which remains Citi’s base case, there will be some market relief that the likelihood of growth-friendly tax reform is rising. While passage in the House does not guarantee at all that a compromise bill with the Senate can be worked out, the market is still likely to react positively,” Citi said.

In the meantime, Citi said failure of the vote would likely be seen as making tax reform less likely, even though in theory the timetable for tax reform could move forward if the Republican party leadership decided to move on from the healthcare to tax right away. But the first reaction would likely be negative for reflation trades, it said.