Fed rate hike seen halting PSEi run

Local stocks are seen to draw some strength from month-end window-dressing activities alongside bargain-hunting but any upside this week is likely to be capped by prospects of a nearing US interest rate hike.

Last week, the main-share Philippine Stock Exchange index (PSEi) lost 177.95 points or 2.5 percent to close at 6,889.78 on Friday.

Investors would want to use the 6,860 support level as a springboard to pick up bargains while foreign investors remain as net sellers, stock brokerage AB Capital Securities said.

“Our market needs strong catalysts to justify a short-term bull run, and for foreign investors to remain as net buyers for an extended time,” AB Capital said, citing the short-lived euphoria over the stronger-than-expected 7.1 percent year-on-year third quarter growth data.

If the US Federal Reserve would hike interest rates during its December 13-14 meeting, AB Capital said the index may mimic the trajectory seen early this year. The index PSEi bottomed out at 6,084 at end-January then peaked at 8,118 at end-July.

“Obviously, the exact level in which the index would bottom out remains to be seen, but the knee-jerk reaction of a rate hike would putter out sooner or later early next year,” the brokerage house said.

If the PSEi this week could sustain gains from month-end window-dressing, AB Capital said last week’s breach of the key support level could be considered a fluke. “That said, there is an underlying bearish sentiment amid both Fed rate hike and emerging market trade fears, which has placed a strain on equities. Profit-taking and position-closing ensues at the strong 7,100 resistance level.”