PSEi faces headwinds from US Fed rate hike fears, peso depreciation

The Philippine Stock Exchange index (PSEi) is expected to navigate another week of cautious trading as investors brace for a potential interest rate hike from the US Federal Reserve, which could prove detrimental to Asian markets, analysts said. F. Yap Securities Inc. noted that the PSEi would likely face another period of thin trading as market participants await the Fed's decision later in the week. As of Saturday, markets were pricing in a 60 percent probability that the Fed would increase rates at its Sept. 15-16 meeting in an effort to curb price hikes. According to F. Yap Securities, a Fed hike would further dampen the economic prospects of emerging markets in Asia, with the Philippines being particularly vulnerable. Such a move would discourage capital outflows, as investors might face higher borrowing costs if they intend to expand their operations. Moreover, F. Yap Securities pointed out that the peso is buckling under pressure, recently hitting an all-time low of 62.68 to $1, despite monetary tightening measures by the Bangko Sentral ng Pilipinas (BSP). The firm warned that rate hikes alone might not be sufficient to prevent further depreciation of the peso. "That is happening even with BSP having hiked three times this cycle to five percent, which tells us that rate differentials alone are not enough to hold the line, with capital flow dynamics and the widening current account gap mattering just as much," F. Yap Securities stated. Japhet Tantiangco, research manager at Philstocks Financial Inc., said that the PSEi is currently lacking a positive catalyst that could drive its return to growth mode. For the week, Tantiangco anticipates the PSEi to trade within a support level of 6,000 and a resistance level of 6,150. The market has been on a downward trend since peaking at 6,488.35 on July 21. Investors are also anticipating September inflation to surpass August's 6.1 percent, driven by oil price increases and the peso's ongoing struggles. Externally, Tantiangco noted that there is still no guarantee of long-term peace in the Middle East, leaving commodity prices vulnerable. "Given these factors at play and with no positive catalyst in sight, investors are advised to remain cautious," Tantiangco advised. Last week, the PSEi closed down by 0.47 percent, or 29 points, on a weekly basis to 6,061.81, weighed down by renewed inflation concerns and the consequential Fed hike expectations.