With the “ghost” month starting soon, investors may find an opportunity to load up on equities at lower valuations, investment house First Metro Investments Corp. said.
Ahead of the “ghost” month, FMIC said both Dow Jones Industrial Average (DJIA) and the Philippine Stock Exchange index had shown remarkable performance breaching the 22,000 and 8,000 resistance level, respectively.
“The PSEi will likely follow the movements of DJIA. Moreover, it gained solid support between the 7,700 and 7,800 levels after the second quarter 2017 [corporate] results were better than expected,” FMIC said in its August publication ‘The Market Call.’
“In any case, it would be best to wait for the PSEi correction before taking in more risks,” FMIC said.
The ghost month—which will start on Aug. 22 (Tuesday) and end on Sept. 19—refers to a period in the Lunar calendar when Chinese investors avoid making big-ticket investments and other big moves like getting married or moving to a new house. This period also typically coincides with the summer break in the west. But as the ghost month came in late this year, some dealers said it might not necessarily coincide with most Western traders’ break.
FMIC noted that with the US economy growing by 2.6 percent in second quarter and adding 209,000 jobs in July on top of a 231,000 (revised upward) gain in June, DJIA was hitting record levels.
“This may have pushed US stocks to levels that would call for a consolidation especially during the ‘ghost month’ of August,” it said. “The PSEi which has moved more closely with the DJIA in July would likely follow suit.”
The research noted that the earnings to price ratio of 10-year treasury bond yield spread had gone to negative territory, making a persuasive case for taking profits.
“For the moment, it looks better to wait for the PSEi correction before taking in more risk,” FMIC said.