PSEi seen staying above 5,200 this week

Local stocks may stay above the 5,200 this week as investors take their cue from the US Federal Reserve’s prospective new round of quantitative easing via bond buyback.

The main-share Philippine Stock Exchange index was in the doldrums for most of last week until the European Central Bank’s announcement of a bond-buying program boosted regional markets on Friday. The index closed marginally higher (+0.1 percent) to 5,201.32 week on week.

For this week, 2TradeAsia.com analyst Freya May Natividad said there might be a good wave ahead of the Federal Open Market Committee (FOMC) meeting. “Markets are resounding the possibility for the US FOMC to extend its monetary stimulus support, in step with eurozone leaders’ move to support their bond repurchase program. Part of the expectation scale stems from the Fed’s possible consideration of another quantitative easing (or QE3) after effecting the first two rounds ($1.25-trillion notes buy-back in 2008-2010 and $600 billion in 2010-2011). If this is validated, markets will check on the amount of bond purchase plan as well as the timeline by which this will be implemented,” Natividad said.

A longer timeframe for the Fed’s bond buyback program under a prospective QE3, Natividad said, would support a similar run-up in equities.

“This view might be shared at home, when local monetary authorities gather anew on September 13, in response to the Fed’s action. An earlier-than-expected rate cut might dominate headlines, providing pluses on earnings upside. Reduced debt servicing would bode well on return on equity, and boost price target estimates,” she said.

Having touched 5,200, Natividad said the PSEi might retest 5,300-5,330 this week, driven mainly by monetary stimulus support from the United States and at home. “Large caps that lagged lately might lead the ascent, specifically for interest rate-sensitive sectors (such as property, banking, infrastructure).”

AB Capital Securities said that for the last week of the superstitious Chinese “ghost month,” it was expecting volume to gradually expand while investors would still be on the lookout for leads abroad, particularly from the FOMC.—Doris C. Dumlao