The Philippine market finally obtained its much needed boost last week but equity traders may need to calm the adrenaline and avoid overextending the bourse, according to analysts.
After more than four months, the benchmark Philippine Stock Exchange Index (PSEi) reclaimed 6,800 on Friday as it closed at 6,847.37, up 3 percent week-on-week.
This came as the Bangko Sentral ng Pilipinas (BSP) slashed its key rate by 25 basis points to 6.25 percent after nearly four years, a move that was long anticipated by anxious traders.
Banks and property firms were the immediate top performers—as these are the sectors expected to gain the most from interest rate cuts.
Banks are expected to see an increase in their loan books, while property firms may take in more sales as borrowing costs decline.
Potential pullback
Jayniel Carl Manuel, equities trader at Seedbox Securities Inc., said such stimulus might just push the PSEi close to the 7,000 psychological resistance level—or even exceed it.
He warned, however, that the rally “might be getting ahead of itself.”
“The sharp upward movement suggests that the market could be overextended, and a short-term consolidation may be necessary,” Manuel said.
“Investors should be prepared for a potential pullback, with the PSEi possibly retracing to the 6,600 level before resuming its upward trajectory,” he added.
When a market is overextended, it faces a risk of decline especially after seeing a sharp increase. It could be likened to The Fall of Icarus, a human figure in Greek mythology who was intoxicated with flying but came tumbling down to earth when the sun melted his waxen wings.
The PSEi rallied by 2.31 percent on Friday. Trading platform 2TradeAsia.com likewise warned the market may need to “keep pace and not get lost in the exuberance” to avoid a plunge.
2TradeAsia sees immediate support at 6,600 and resistance at 7,000. —MEG J. ADONIS INQ