Local stocks are seen to trade with continued caution this week ahead of the first local monetary policy setting under new Bangko Sentral ng Pilipinas chief Benjamin Diokno on Thursday, alongside concerns on domestic growth.
Last week, the main-share Philippine Stock Exchange index was unchanged at 7,798.28 compared to the previous week.
BDO Unibank chief strategist Jonathan Ravelas said investors lacked fresh incentives to trade while awaiting the outcome of the first monetary board meeting under Diokno, who issued dovish statements last week.
“The week’s close at 7,798.28 highlights consolidation within the 7,700 to 8,000 levels,” Ravelas said.
“Be mindful that a test of the 7,500 support levels is still probable in the near-term. Only a break above 8,000 will call the bulls back to play.”
Overall, trading was very quiet last week, which was characterized by thin daily trading volumes, said Eagle Equities Inc. head of research Christopher Mangun. He noted that almost half of the P42.71 billion traded last week came on Friday, the day that the Financial Times Stock Exchange index rebalancing took place.
“The main index may continue to trade between the trading range between 7,600 and 7,900 in the coming weeks,” Mangun said.
Despite improving economic fundamentals, he noted that the Philippine government had cut its 2019 gross domestic product growth target to 6-7 percent from 7-8 percent, citing a delay in final legislative approval of the budget. The inflation target, on the other hand, was raised to 3-4 percent from 2-4 percent.
“Investors may have been expecting this, thus the cautious sentiment,” Mangun said.
“Another factor is the depreciation of the local currency. In the last couple of years, there seems to be a correlation between extremes in the currency market and the stock market. The main index tends to go lower as the currency gets weaker and [it tends to go] higher as the currency gets stronger. Overall, the strategy has been to pick up second liners with good growth prospects,” he added.
Meanwhile, the depreciation of the currency also added to the cautious sentiment. Mangun noted that the Philippine peso had tested 53.50 against the US dollar last week, following dovish comments from Diokno.
BDO’s Ravelas said last week’s close at 52.65 signaled consolidation within the 52.25 to 52.75 levels against the US dollar in the near-term.
“A break above the 53-levels will signal further weakness towards the 53.50 to 54 levels. Only a move below the 51.70 levels will signal further appreciation toward the 51 to 51.50 levels,” he said. —DORIS DUMLAO-ABADILLA