Philippine Stocks Brace for Sideways Trade Amid Wait for Major Catalysts

The local stock market is anticipated to trade sideways this week as investors await major catalysts to support a continued rally. Last week, the Philippine Stock Exchange index (PSEi) managed to maintain its hold above the 6,200 level, bringing a return to the 6,300 level within reach. It closed at 6,286.70 on Friday, up by 1.59 percent week-on-week. Japhet Tantiangco, research manager at Philstocks Financial, noted that the local market has shown positive momentum in the last two weeks, climbing a total of 3.53 percent. Support from foreign investors was also observed recently, with the last six trading days all posting net inflows totaling P3.76 billion. However, Tantiangco cautioned, “Trading remains thin with value turnover averaging P5.55 billion last week, implying that the rally is not backed by strong conviction. While the past two weeks have been positive due to bargain hunting, downside risks are still seen for the local bourse.” He anticipates the trading range for this week to be between 6,150 and 6,400. The situation in the Middle East is expected to remain a concern among investors, as a re-escalation of tensions which could cause oil prices to rebound may weigh on the local market. Upside risks to inflation, including global oil price volatility, El Niño, and inflation expectations, also remain on the table and could dampen market sentiment. “Overall, we’ve been seeing positive momentum for the local bourse. So far however, this is seen to be driven mainly by bargain hunting. Downside risks are still in play while no optimistic catalyst is seen yet. Hence, investors are advised to maintain caution,” Tantiangco advised. 2TradeAsia.com recommends staying cautious around interest-sensitive stocks, as the Bangko Sentral ng Pilipinas (BSP) is expected to hike rates by 25 basis points anew by year-end. “June inflation delivered a welcome step in the right direction, but sticky core pressures and geopolitical oil risks mean the BSP tightening cycle is far from over,” it said. “With upcoming release of second quarter earnings, identify specific earnings plays amid anemic average EPS (earnings per share) growth estimates,” it added. According to 2TradeAsia.com, banks are seen to deliver resilient net interest margins, with the recent waiver of electronic transfer fees posing a negligible threat to earnings. Energy names offer direct hedging value, while parent conglomerates, which are trading at historically wide discounts to net asset value, offer opportunities to play the margin recovery of their underlying subsidiaries.