Market to continue consolidation

The local stock barometer is seen to test the 8,000 mark this week as investors await more data from the third quarter local corporate reporting season.

Last week, the main-share Philippine Stock Exchange index (PSEi) added 0.53 percent to close on Friday at 7,926.88, firming up for the third consecutive week.

The week’s close suggests that the index will continue to consolidate within the 7,700 to 8,000 levels in the near-term, said BDO Unibank chief strategist Jonathan Ravelas.

“Expect the bounce to stretch toward the 8,000 levels in the near term. Failure to try the 8,000 level could cause some profit-taking and retesting the 7,700 level,” he said.

Joseph Roxas, president of Eagle Equities Inc., said it was possible the PSEi would breach the 8,000 mark this week. “But it will be short-lived,” he said.

In the coming weeks, Roxas said investors would prepare liquidity for upcoming initial public offerings (IPOs).

The Philippine Stock Exchange last week approved two new IPOs. Electronics manufacturer Cal-Comp Technology (Philippines) will sell as much as P10.7 billion worth of shares from Nov. 11 to 15 while food and beverage kiosk operator Fruitas Holdings Inc. plans to raise as much as P1.2 billion from an offering set for Nov. 18 to 22.

Papa Securities said the surprise 100-basis point reserve requirement ratio (RRR) cut announced by the Bangko Sentral ng Pilipinas (BSP) last week could boost the market. But as the market has hit overbought levels, it said any run-up could be capped at its resistance of 8,130.

The BSP’s dovish move is seen to perk up domestic economic growth.

“I think the decision to cut RRR is a proactive and timely one that should help mitigate the impact of global headwinds and this year’s public sector underspending on our GDP (gross domestic product) performance. This should also increase the probability of Philippine GDP growth getting back to the 6-7 percent range by next year,” said BPI lead economist Emilio Neri Jr.

If inflation remains on target in 2020 and the BSP refrains from “overdoing” the RRP cuts, Neri said the country could be on track to a single-digit RRR as early as end 2021.

“These cuts would have been less viable had the BSP not gained a new charter early this year, thanks to the unwavering efforts of former Governor Nestor Espenilla Jr. who was able to convince our lawmakers and the President to sign it into law,” Neri said.

ING Philippines economist Nicholas Mapa said the reduction in the RRR to 14 percent of total deposits by year-end after a total of 400-bps reduction which should “help ease chronic tightness in liquidity.” However, he said this may do little in addressing the sluggish growth momentum posted in second quarter GDP.

“Despite a whopping P200 billion unleashed into the financial system, bank lending remains anemic amidst the capital formation meltdown … Thus, successive rounds of RRR reductions will do little to insulate Philippine growth momentum unless accompanied by the right tool to provide the economy a nice shot in the arm going into 2020,” Mapa said.