PSEi seen testing key support levels

Local stocks are seen trading with bias on the downside this week as investors gauge the economic impact of a prolonged lockdown of Luzon and other key regions until May 15.

Last week, the main-share Philippine Stock Exchange index (PSEi) declined by 324.99 points or 5.6 percent to close at 5,464.98.

“We expect the PSEi to test key support levels this week as the pandemic thumped the bear-market rally. Any run-up does not have enough fundamental legs to support it,” said Jose Vistan, head of research at local stock brokerage AB Capital Securities.

“The key to a sustainable recovery is when we see people out of their homes again,” Vistan said.

The extension of the enhanced community quarantine (ECQ) brings to two months the disruption of economic activi­ties in Luzon, which accounts for over 70 percent of the country’s economic output.

Vistan sees support levels for the PSEi at 5,232 and then at 5,050.

“With valuations showing earnings yield of 8.5 percent plus an accommodating monetary policy, we should see base-buil­ding as investors look to position for the long term,” Vistan said.

BDO Unibank chief strategist Jonathan Ravelas said last week’s close at 5,464.98 “may see more price action toward the retest of the 5,000 levels in the near-term.”

Ravelas sees immediate support and resistance levels at 5,500 and 5,900 levels, respectively.

Based on President Duterte’s recent COVID-19 quarantine announcement, Union Bank economist Ruben Carlo Asuncion said 90 percent of Luzon was still effectively under ECQ while a total of 86.2 percent of the Philippine economy was still under ECQ. This could lead to a modest gross domestic product growth of 0.7 percent assuming a general community quarantine until August, the economist said.

But in the worst-case scenario where COVID-19 infections flare up again when economic controls or nonpharmaceutical interventions are relaxed, Union Bank sees gross domestic product (GDP) this year contracting by 3.4 percent.

The last time the Philippines saw a recession was in 1998, when the Asian financial crisis resulted in a 0.6-percent GDP decline.

“In our simulations, the month of August this year and January 2021 are anticipated months of COVID-19 cases resurgences, and March 2021, as a probable month when a vaccine may be discovered,” the Union Bank research said.—DORIS DUMLAO-ABADILLA INQ