Cautious trading seen due to Taal uncertainty

The local stock market is seen continuing to trade with caution this week as investors gauge the economic impact of Taal Volcano’s recent eruption.

Last week, the main-share Philippine Stock Exchange index (PSEi) fell by 0.7 percent to close on Friday at 7,722.58, declining for the second straight week.

BDO Unibank chief strategist Jonathan Ravelas said last week’s decline was triggered by foreign funds’ shift to US markets after the signing of the US-China trade deal, which sent the US indices to record highs.

“Continue to see the PSEi to consolidate within the 7,700 to 7,900 levels,” Ravelas said.

Papa Securities expects the PSEi remaining vulnerable to a retest of its recent lows and major support area of 7,470 in the near term “more so with the recent ramp up in net foreign selling, likely due to a risk-off stance in case the Taal situation escalates.”

However, Papa Securities said technical readings appeared to show some light at the end of this tunnel as a fall to the support area of 7,470 might also signal the relative strength index (RSI) at oversold level—seen “a positive sign that the 7,470 area would hold.”

“Oversold RSI instances for the index last 2019 didn’t last for more than two days, with the PSEI seeing sharp bounces right after,” the brokerage noted.

At a briefing last week, local investment house First Metro Investment Corp. (FMIC) said that with robust macroeconomic fundamentals supporting low interest rates, benign consumer prices and corporate earnings, the PSEi might climb to 8,600 to 8,900 this year.

FMIC vice president of research Cristina Ulang said investors would likely be willing to pay 16.8 to 17.4 times the kind of money they were likely to make from PSEi stocks this year. She expected corporate earnings to grow by an average of 10 percent this year.

On FMIC’s stock picks, Ulang said the best bets in line with the consumer theme were Jollibee Foods Corp., JG Summit, Ayala Land Inc., SM Prime, Puregold Price Club, GT Capital, Wilcon Depot and Robinsons Retail Holdings Inc. Consumer growth is a big theme that FMIC said would be in play for this whole new decade.For those searching for dividend plays, FMIC’s top picks were Globe Telecom, Meralco and Aboitiz Power.

Meanwhile, Ulang said the undervalued stocks worth picking up were Metrobank, BPI, Security Bank and Metro Pacific Investments Corp. INQ