PSEi may still have some power to launch another rally this week

Local stocks are seen to gain more ground this week as investors digest the final stream of third quarter corporate earnings reports and the latest rebalancing of closely tracked MSCI indices.

Last week, the Philippine Stock Exchange index (PSEi) added 0.57 percent to close on Friday at 7,382.84 as investors cheered the 7.1-percent year-on-year gross domestic product (GDP) for the third quarter, which exceeded market consensus growth forecast of only 4.9 percent.

Joseph Roxas, president of Eagle Equities, said the market was still biased for the upside and the index could likely next target the 7,480 mark this week.

He noted the market was able to regain some liquidity after last week’s listing of Synergy, whose follow-on offering earlier siphoned off P13.85 billion.

Based on the Nov. 11 rebalancing of the MSCI Global Standard indices, AC Energy and Monde Nissin will be added effective at the close of trades on Nov. 30. It has been estimated that these two companies would receive $150 million in equity flows as a result of the latest review.

Unexpected inclusion

What the local market had not anticipated was the inclusion of Filinvest REIT and LTG in the MSCI Small Cap index, Roxas said.

Real estate investment trust pioneer AREIT was also added to MSCI Small Cap, while DoubleDragon was deleted and AC Energy transferred to the main basket.

Meanwhile, liquor distributor The Keeper is also set to list new shares on Nov. 19 after a P4.5-billion follow-on offering.

BDO Unibank chief strategist Jonathan Ravelas, meanwhile, noted that private consumption had grown by 7.1 percent year-on-year and 3.7 percent quarter-on-quarter.

“Furthermore, discretionary spending spiked to 26 percent quarter-on-quarter. This caused investors to take on more risks,” Ravelas said.

Friday’s close at 7,382.84 highlighted a “strong upward momentum,” he added.

“Look for a try at the 7,500 levels. Failure to test the said levels could prompt some profit-taking and could signal a near-term peak could be in place at 7,475.75 (the Nov. 10 high),” Ravelas said.

Monetary tightening

Nicholas Mapa, ING Philippines economist, said that with growth momentum entering a new stage of consolidation, the Bangko Sentral ng Pilipinas (BSP) may turn “increasingly hawkish,” or inclined toward monetary tightening, as it begins to prepare for the eventual US Federal Reserve “normalization” cycle next year.

“BSP was right to wait for the economic recovery to gain some steam before removing support and with the growth engines turning with a little more pace, we forecast BSP to gradually adjust monetary policy in the coming months to turn its focus to other aspects of the economy,” Mapa said.

Still, the negative impact from scarring during the prolonged pandemic may have begun to set in, he said.

Despite the likely continuation of “revenge spending,” Mapa was skeptical that household spending could sustain the brisk pace of expenditure as households may gradually allocate some disposable income to rebuilding depleted savings.

“Lastly, government expenditures are likely to grow at a slower pace as we round out the year due to base effects and as authorities look to reign in their deficit and debt levels with the current debt-to-GDP ratio still above 60 percent despite the improved GDP output,” he said. —Doris Dumlao-Abadilla INQ