Relief rally seen as earnings reports start coming in

Stock market investors may see a continued relief rally this week as second quarter local corporate results start trickling in.

Last week, the main-share Philippine Stock Exchange index (PSEi) recouped 1.85 percent to close at 7,193.68 as foreign selling slowed. The local stock barometer gained for the first time in two weeks.

BDO Unibank chief strategist Jonathan Ravelas said investors took advantage of the cheaper valuation and the index falling below the 7,000 levels to accumulate stocks last week, resulting in some bargain hunting activities as the recent low at 6,923.67 held on.

“The week’s close at 7,193.68 gives some room to try the 7,500 levels in the near term. But bear in mind that the market remains vulnerable toward the 6,500 to 6,800 levels is still probable,” Ravelas said.

Immediate support level is seen at 7,000.

Christopher Mangun, Eagle Equities Inc. research head, said July might start with a lot of optimism. “(There’s a) strong indication that we will see the bottom soon and the end of this correction that we are experiencing.”

If the index breaks the next resistance at 7,250, this could fill the trading gap at 7,420 and possibly test the next resistance at 7,500, he said.

“The other scenario is that the index trades sideways between 7,000 and 7,200,” he said.

Since the beginning of the bull run in 2009, he said, the longest the PSEi had closed in the red was five months in a row as seen in the latter part of 2016.

“If history repeats itself, then we may see the index end July in the green. There are several potential catalysts that may help push the market higher this month as we are expecting second quarter numbers to come in and the President’s State of the Nation address which has been known to uplift investors’ spirits,” Mangun said.

The market trading volume last week of P31.19 billion was still below average but the net foreign selling of P415 million eased relative to the average weekly level seen earlier.

The PSEi has pulled back by over 20 percent from the historic peak of 9,078.37 attained on Jan. 29 this year and entered the bear territory.

Last week, the stock market saw the first new initial public offering listing for the year. Integrated property developer DM Wenceslao raised P8.1 billion in an oversubscribed offering but share price slid by 14.5 percent on its first day of trading on Friday.

“Perhaps the negative sentiment of the market has rubbed off on the company. However, being a property company that has 90 percent of its portfolio in one of the fastest growing areas in Metro, there is strong indication that the stock will recover as investors get to know this newly listed company,” Mangun said.

Papa Securities said a tightening interest rate cycle had led to the PSEi’s slump.

“The spread between the PSEi’s earnings yield and the benchmark breached into negative territory at the start of this year. The PSEi may head to 6,100 to 6,300 range, when the spread returns to its long-term average of 75 basis points. At this level, the earnings yield for investors to be compensated for additional risk hits 7 percent (14 times earnings),” the brokerage said.