PH market, taking cue from US stocks’ performance, seen stabilizing

The local stock market may stabilize this week as US stocks rebound and investors digest the recent slew of unfavorable local economic data.

Last week, the main-share Philippine Stock Exchange index shed a total of 78.77 points, or 1.38 percent, to close at 5,621.94.“The market’s ongoing rally has been persistent despite the supposed negative economic data in the Philippines and in the US,” said Ron Acoba, chief investment strategist at trading research provider Trading Edge Consultancy.Last week, the Philippines reported a 0.2-percent year-on-year gross domestic product (GDP) contraction in the first quarter, suggesting an imminent recession given that the full impact of the lockdown measures in Metro Manila and other key regions would be felt the most in the second quarter.

Meanwhile, global credit watchdog Fitch Ratings last week tempered its rating outlook back to “stable” after setting this to “positive” only in February, suggesting that there would likely be no further credit rating upgrade from BBB in the next 18 to 24 months.“Local market may likely take its cue from the US as their indices were being led by the outperformance of the technology and online retail sectors,” Acoba said.

On Friday, the closely tracked Dow Jones Industrial Average surged by 455.43 points, or 1.91 percent. Jose Vistan, head of research at AB Capital Securities, said the market would likely move sideways this week, with the bias to be dictated by upcoming corporate earnings reports. He sees the next key support at 5,620.“Volatility has reduced dramatically to the 8-percent range from a high of 57 percent in late March,” Vistan said.

Having said that, Vistan said normal volatility in the local stock market based on Bollinger volatility bands was around 4 percent.

“So the current volatility is still double of the normal, but much less than what we had seen in late March,” he said.

“It seems like the market has priced in a U-shaped recovery with a high probability of a technical recession but not a deep recession. However, the coming transition from ECQ (enhanced community quarantine) to GCQ (general community quarantine) should give investors a better picture of how the new normal will mean for the economy,” he said.Metro Manila has been locked down to curb the spread of COVID-19 since mid-March.

Vistan said the first quarter GDP number had been priced in along with some of the local corporate earnings, but investors would still have to look at subsequent earnings reports. INQ