Profit-taking seen

Investors are closely watching whether the local stock market can stay above the 7,200 mark this week as some large-cap stocks hit overbought levels.

Last week, the Philippine Stock Exchange index (PSEi) racked up 212.69 points or 3.02 percent to close on Friday at 7,263.58 on a string of positive local news such as the ratings upgrade from a South Korea-based credit-rating agency and improved competitiveness ranking alongside a surprise monetary stimulus from the European Central Bank.

The market is now trading at its peak for the year and not too far from the all-time high of 7,400 seen last year.

“Chart-wise, with the index managing to not only break above 7,200 but hold above that level as well, a test of the 7,400 levels could be in the horizon. Given that the index is at overbought conditions, however, a corrective move can be expected in the near term as investors would opt to take profits,” said Banco de Oro Unibank chief strategist Jonathan Ravelas.

“Should the index break below 7,200, a retest of the 7,000 levels could occur,” he said.

One key development to watch for is this Thursday’s monetary-setting of the Bangko

Sentral ng Pilipinas (BSP), during which more tightening measures are expected.

Alexander Adrian Tiu, an analyst at AB Capital Securities, said that while the PSEi continued its rise against a backdrop of a more competitive and stronger economy, gains might be tempered after consumer price index (CPI) data showed that prices rose by 4.9 percent in August.

With inflation near the upper band of the 3-5 percent BSP target and stronger-than-expected second-quarter gross domestic product growth, Tiu said a rate increase was anticipated in the Sept. 11 central bank meeting.

“In an event of a rate hike, the cost of borrowings of businesses increases, lowering future net earnings,” he said.

On a technical basis, he said investors must keep watch for any breach below the resistance-turned-support level of 7,200. Doris C. Dumlao