By James A. Loyola
The local stock market continued to rally, rising five of the year’s first 6 trading days, riding on optimism that the US-China trade row will be resolved soon.
The Philippine Stock Exchange index (PSEi) surged 217.55 points, or 2.83 percent, to close at 7,919.67 as share prices rose across the board led by the Holding Firms sector which registered a 4.48 percent hike, followed by the Services and Property counters.
Trading volume jumped to 3.37 billion shares worth P10.17 billion with 140 stocks advancing against 72 decliners while 30 issues were unchanged.
“Philippines shared cruised past the 7,900 level, trading more than 200 points with very little pause as global sentiment turned bullish on the results of the trade deal,” said Regina Capital Development Corporation Managing Director Luis Limlingan.
He noted that, “US stocks rose on Tuesday as large tech companies like Apple and Amazon outperformed while investors remained cautiously optimistic Washington and Beijing could move forward on a trade deal.”
Other Southeast Asian stock markets also rose on as further headway in US-China trade talks increased chances of the two nations striking a deal to end the long-drawn confrontation, lifting uncertainty from the market.
“Market players continued to place their hopes on the ongoing US-China trade for some positive breakthrough,” said ING, in a note to clients.
Traders at Rizal Commercial Banking Corp. and AB Capital & Investment Corp. are riding the rally by deploying their cash, rather than cutting their stock holdings as they did last year whenever equities went into high gear.
“It’s a good strategy to ride the prevailing positive mood, even if only for the short term,” said Gerard Abad, Chief Investment Officer at AB Capital.
He added that, “we will see a continuation of the improvement in inflation, and it helps that the US Fed has become dovish. That eases pressure on the central bank to raise rates.”
The optimism stems from encouraging inflation data – it slowed for a second month from a nine-year high, reaching its slowest pace since May – and prospects that the Federal Reserve will ease interest-rate increases.
That’s brought down the US dollar from a high, prompting foreign investors to come back to the Philippines: They’ve already pumped in $49 million in equity funds this year, including the longest streak of daily inflows in five months, after $1.08 billion of withdrawals in 2018.
“Sentiments are very bullish. We are taking profit in some of the leaders, but rotate the money into stocks that will outperform as the climb to the 8,100 to 8,200 level is quite possible from here,” said Rizal Bank Trader Steven Ko.
Nomura analysts Chetan Seth and Jayant Parasramka upgraded Philippine equities to overweight from neutral, citing a peak in the nation’s inflation. Stock valuations can be justified by strong earnings growth prospects, they said.
Ko is looking for market laggards, with a preference for banks and consumer-related shares on expectations margins will improve and earnings will grow.
Abad, who in addition to those sectors also likes property, is withdrawing from mid-cap stocks and putting the money into the market’s biggest companies, which he expects will propel the nation’s benchmark index higher.
Slowing inflation could boost spending and margins that could trigger a corporate earnings surprise and drive the Philippine stock index to 8,900 this year, according to Jody Santiago, Manila-based strategist at UBS AG.
He forecasts market earnings growth to speed up to 12.3 percent this year compared with about 8.5 percent in 2018, when rising inflation squeezed margins and hurt consumer demand.
Optimism for earnings growth is renewing interest from overseas investors and helping support valuations, Ko said. That’s even though, at 16 times projected profit for the next year, they remain among the highest in Asia.
“It’s too early to say if the foreign-fund inflow is a reversal of last year’s withdrawals, but definitely there is some interest in emerging markets and the Philippines,” Ko said. (With Bloomberg report)