Cautious stock trading expected this week

Local stocks are seen trading with caution this week amid US recession fears, volatile political conditions in Hong Kong and uncertainties in the local online gaming industry.

Last week, the main-share Philippine Stock Exchange index (PSEi) shed 58.41 points, or 0.74 percent, to close on Friday at 7,795.98 as the second-quarter local corporate earning season ended.

“Usually, the market goes up after the initial panic because of yield inversion,” said Joseph Roxas, president of Eagle Equities Inc. He was referring to the recent volatility in the US market arising from the inversion of the yield curve—a situation in the bond market in which long-term interest rates fall below short-term rates.

In the United States, an inverted yield curve is historically a leading indicator of an economic recession.

But Roxas said that after the knee-jerk jitters, markets could go up in the US as well as here. However, he said US markets would have to stabilize to bring good tidings to other markets.

At the same time, Roxas said investors were also closely watching the worsening political condition in Hong Kong. Mass protests have been taking place in Hong Kong in the biggest challenge to China’s rule since the 1997 handover from Britain.

Likewise, Roxas said there should be clarity on Philippine offshore gaming operators (Pogos).

The crackdown on Pogos, which have perked up the local property industry, has dampened interest in property companies with big exposure to this industry.

BDO chief strategist Jonathan Ravelas said fears of a recession in the United States plagued investor sentiment both locally and overseas. “These tensions stemmed from the escalation in the trade war between the US and China,” he said.

“The week’s close at 7,795.98 continues to signal the market to consolidate within the 7,700 to 8,000 levels in the near term. However, downside risk remains toward the 7,500 levels,” Ravelas said.

If 7,500 would be broken, Roxas said the market could see a retest of the 7,000 to 7,300 levels.