Rising inflation, vaccine rollout uncertainty add to downward bias in market

Local stocks are seen grappling with headwinds from the stream of local fourth quarter corporate earnings, rising inflation and uncertainties on domestic coronavirus (COVID-19) vaccine rollout.

Last week, the main-share Philippine Stock Exchange index (PSEi) shed 64.6 points or 0.9 percent to close on Friday at 6,926.“Despite talks of the country’s transition to MGCQ (modified general community quarantine) by March and the passage of the Financial Institutions Strategic Transfer (FIST) bill, index activity remained tepid on delays of vaccine arrival and also amid increasing inflation risk,” said Rachelle Cruz, head of research at AP Securities Inc.

This week, Cruz expects investors to closely watch out for the release of the 2020 earnings results of select index heavy-weights like Ayala Land Inc., SM Investments, BDO Unibank, as well as a clearer timeline of vaccine distribution.

“The MSCI rebalancing with an estimated modest outflow for the Philippines in this cycle will also be implemented at close of business on Feb. 26. This will contribute to downward bias for the index. With this, we expect the PSEi to remain within a tight range of 6,800 to 7,200 this week,” she said.

BDO Unibank Jonathan Ravelas said concerns over rising inflation as oil prices surged past $60 per barrel were also gnawing on sentiment. He noted Bangko Sentral ng Pilipinas Governor Benjamin Diokno’s expectation that consumer prices would remain high in the first half of the year.

Last week’s close at 6,926.41 signals that the current rally remains fragile and susceptible to sell-offs, Ravelas added.

“This highlights that the market is having difficulty to sustain itself above the 7,000 levels. Should the sell-off continues expect a retest of the 6,700 to 6,800 levels,” he said.

Economists and business groups backed calls to open the Philippine economy to support recovery and sustainability. The shift to the less stringent modified MECQ is seen to serve the delicate balance between poverty and health. INQ