Local stocks are seen retreating from all-time highs this week as more investors may either pocket gains or temper further buying following lingering global concerns.
Last week, the main-share Philippine Stock Exchange index gained 116.27 points, or 2.2 percent, to close at 5,362.68 on Friday. The index last week marked a new all-time high at 5,403.16. A credit rating upgrade by Standard & Poor’s on Philippine government debt to a notch below investment grade (BB+) also brought good tidings to the local market.
“Given the recent market performance and the ongoing global concerns (US and China slowdown and the European crisis), the market appears ripe for a pause (correction) possibly toward 5,150-5,200 levels in the near term,” said Banco de Oro Unibank chief strategist Jonathan Ravelas.
“However, market movement remains strong,” he said.
Maria Arlysa Narciso, an analyst at AB Capital Securities, said the recent rally of the index has brought its valuation to a trailing price-to-equity of 18.4 times, even higher than its five-year average. This means investors were paying 18.4 times the amount of money that the market made in the previous year. Narciso said this made Philippine equities among the most expensive markets in the Asian region.
“However, growth expectations for the country still warrant a positive outlook for the Philippines,” she said, citing the favorable local economic backdrop.
But Narciso noted that for the near term, the PSEi’s rally “seemed to have already lost some steam,” adding that correction was possible for this week after reaching high valuations and overbought levels.
“The local outlook, although still rosy, will remain influenced by external weakness of major economies,” Narciso said.
She said AB Capital Securities’ sights were set on gaming, which would generate large amounts of cash in the future; media, which would benefit from increased ad spending come elections; and energy due to substantial increase in required capacity.
The market is also opening Monday amid a weak global backdrop. On Friday, the Dow Jones Industrial Index lost 124.2 points, or 0.96 percent, to 12,772.47 on news that only about 80,000 nonfarm payroll jobs were added in June, the third straight month that employment expanded by less than 100,000 jobs. Some analysts expect the US Federal Reserve to undertake a third round of quantitative easing, a system of buying back bonds to infuse additional liquidity into the system, by the second half of the year.—Doris C. Dumlao