The local stock barometer is seen to languish below the 8,000 barrier this week as investors assess a string of global uncertainties as well as the so-called “October effect.”
Last week, the main-share Philippine Stock Exchange index (PSEi) shed 51.89 points or 0.66 percent to close on Friday at 7,819.22.
October is seen as a weak month for stocks, based on historical market records.
Apart from the October effect, initial public stock offerings are siphoning off liquidity from the local market. As integrated coconut manufacturer Axelum Resources ends its offering on Sept. 30, Villar-led home improvement retailer AllHome Corp. begins its P14.83-billion offering.
Meanwhile, international factors have taken their toll on the PSEi, said PNB Securities president Manuel Lisbona.
“Uncertainty and instability caused by the ongoing US-China trade war, recession expectations in the US and an unfolding impeachment for US President Trump are pushing foreign funds further into risk-off sentiment,” Lisbona said.
Since the start of the year, Lisbona noted that net foreign buying had dwindled to P3.5 billion from a peak of more than P30 billion for the year.
“It’s also likely that some of these investment funds exited not just the stock market but also the country given the peso’s weakness [against the dollar],” Lisbona said.
Chartwise, Lisbona said the market had closed below its 200-day moving average. “This implies an underlying weakness that may persist. Immediate support is at 7,723 and if pierced, next level will be at 7,622. If the market will respect the first support, 8,000 will be the key resistance level to pierce,” he said.
Despite the fresh interest rate cut by the central bank, BDO Unibank chief strategist Jonathan Ravelas said market participants remained on the sidelines amid concerns over the global trade war and domestic growth.
“The week’s close at 7,819.22 continues to signal the market to consolidate within the 7,700 to 8,000 levels in the near-term,” Ravelas said. “But look at another attempt back toward the 8,000 levels in the near term.”
Meanwhile, the BSP announced on Friday a surprise 1-percentage reduction in the reserve requirement ratio (RRR) of banks.
“Latest RRR cut will increase peso liquidity in the local financial system by approximately P90 billion. We think this latest RRR cut should be generally positive for the financial system and to the economy in general, as greater amounts of funds and loans will be made available to consumers and businesses,” Security Bank economist Robert Dan Roces said in a research note.
With Security Bank projecting September inflation at 1 percent alongside the country’s below 6-percent economic growth in the past two quarters, Roces said the RRR cut was “timely and will help mitigate growth risks for the rest of 2019.”