Profit-taking seen to continue this week

Local stocks are seen to trade with caution after hitting new highs last week as more investors may be tempted to pocket recent gains, but overall sentiment on the local market remains upbeat despite lingering overseas uncertainties.

Last week, the main-share Philippine Stock Exchange index gained 130.47 points, or 2.9 percent, to 4,613.83. It hit a new all-time high of 4,648.11 on Thursday but pulled back on Friday.

“The market will likely unwind overbought stocks, which means there could be continued profit-taking. The rise has been sharp,” said Conrado Bate, president of online stock brokerage Citiseconline.com.

“But I think the downside is limited because a lot of people who sold during the run-up are buying in again,” Bate said.

In the last two weeks, he said the market was lifted by passive funds re-rating Asian markets favorably. As such, he said the rally was driven by liquidity rather than news.

“The buying was mainly foreign-driven and the locals were selling but the locals will go back if given a chance,” he said.

With investors seeking ways to make their cash work harder given prospects of a low-interest rate environment, he said the main index might trade at plus or minus 3 percent from recent highs. He said he was not expecting any major market-moving news this week, adding that a 25-point potential cut in this week’s policy rate-setting by the Bangko Sentral ng Pilipinas had been priced in.

He added that the local market was now starting to decouple from sentiment in the European Union, nine members of which were downgraded by Standard & Poor’s Ratings Services. Long-term ratings on the sovereign debt of Cyprus, Italy, Portugal and Spain were lowered by two notches while Austria, France, Malta, Slovakia and Slovenia were downgraded by a notch.

“In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone,” said S&P, adding that its ratings outlook on all but two of the 16 eurozone sovereigns was negative.

“We’re very tired of EU debt but this doesn’t mean it won’t create volatility,” Bate said, adding that the latest development might only have a neutral effect.