Public offers seen to take away funds from stock trading

The local stock barometer is seen continuing to struggle with the 8,000 barrier especially as upcoming initial public offerings (IPOs) siphon off liquidity from the market.

Last week, the Philippine Stock Exchange index (PSEi) fell by 1.52 percent to close on 7,871.11.

BDO chief strategist Jonathan Ravelas said investors remained defensive ahead of this week’s monetary meeting of the Bangko Sentral ng Pilipinas (BSP).

“The week’s close at 7,871.11 continues to signal the market to consolidate within the 7,700 to 8,000 levels in the near term,” Ravelas said.

Joseph Roxas, president of Eagle Equities, said the PSEi might stay below the 8,000 resistance level as funds flowed to upcoming IPOs.

The P4-billion IPO of leading integrated coconut product manufacturer Axelum Resources will run from Sept. 24 to Sept. 30, while Villar family-led AllHome Corp.’s offering, which can reach up to P18 billion, will run from Sept. 30 to Oct. 4.

This week, investors look forward to the next barrage of central bank policy decisions in the region coming from New Zealand, Philippines and Thailand.

In the Philippines, BSP Governor Benjamin Diokno has repeatedly stated that another 25-basis point rate cut was looming this year. The next policy setting is this Thursday (Sept. 26).

In a research note, ING said a sharp slide in consumer price inflation in August below the BSP’s 2 to 4 percent policy target seemed to set another 25-basis point reduction “cut in stone,” the third this year. This is one of the two Asian central banks, the other being Bank Indonesia, with significant policy space from 175-bp of rate hikes last year.

For HSBC economist Noelan Arbis, given Diokno’s recent rhetoric, HSBC now expects the BSP to cut its policy rate by 25 bps this Sept. 26 and still forecasts another 25-bp cut in the first quarter of 2020, leaving the overnight borrowing rate at 3.75 percent by end-2020.

“The rationale for rate cuts is slowly broadening from supporting growth to also normalizing interest rates. Indeed, high frequency indicators suggest that the Philippine economy is turning around from its below-trend growth in first half 2019. Government spending is picking up, exports have turned positive and consumer sentiment has turned more upbeat,” Arbis said.

A broadening view to “normalization,” however, also implies that the BSP is unlikely to reduce rates to “accommodative” levels to support growth for now, Arbis said.

“In our view, leaving the policy rate at around 3.75 percent provides enough real rate buffer, assuming inflation averages around 3 percent (midpoint of the BSP’s 2 to 4 percent target range), to limit financial stability risks and a buildup in demand-driven inflation. Meanwhile, it also leaves enough policy space to cut rates further in case of an economic slowdown,” Arbis said.

Additional easing in the form of cuts in the reserve requirement ratio also reduces the need for more aggressive policy rate cuts, the economist said. He sees the BSP announcing a 100-bp reserve requirement cut in the fourth quarter as soon as the Sept. 26 meeting, which may be implemented in a staggered manner.