Consolidation to continue

Local stocks are expected to continue consolidation below 8,000 this week as investors digest the last stream of fourth quarter earnings reports, the MSCI rebalancing and as they await the release of the Philippines’ second quarter economic growth data.

Last week, the Philippine Stock Exchange index ended flat at 7,928.43 compared to the previous week’s closing of 7,932.82.

BDO Unibank chief strategist Jonathan Ravelas said profit taking activities had been taking place at the 8,000 levels following the market’s failure to sustain itself above this level.

“It seems that market is trading defensively amid global geopolitical tensions and the upcoming release of second quarter (PH) gross domestic on 17 August,” Ravelas said.

“Chartwise, the week’s close at 7,928.43 continues to highlight that the market has strong support at the 7,850-7,900 levels. Expect another attempt of the 8,000 levels,” he said.

Immediate support and resistance levels are seen at 7,850 and 8,000 levels, respectively.

One major catalyst on Friday which may continue to influence trades in the next few days is the latest MSCI rebalancing which will take effect at the close of trades on Aug. 31.

Based on the latest index weight adjustments, Security Bank bagged additional index weights while the risk weights on SM Prime Holdings, Ayala Land and BDO had been reduced.

The exchange of hostile rhetoric between the US and North Korea has likewise curbed risk-taking across regional markets.

In the meantime, the peso weakened by 1.63 percent last week to close at 50.98:$1. The peso hit a new 11-year low at 51.08 last week.

Ravelas said other factors behind the peso depreciation included lingering concerns over the widening current account deficit as the Bangko Sentral ng Pilipinas sees wider current account deficit next year to $1.6 billion from a projected $600 million shortfall this year.

“The test of the 51.00 levels put the 51.25–51.50 levels within striking distance,” Ravelas said. “Continue to see the market to range between 50.70 – 51.00 levels in the week ahead.” —DORIS DUMLAO-ABADILLA