The local stock market is seen to continue suffering from weak investor confidence as well as a drain on liquidity due to the initial public offering of Converge Information and Communications Technology Solutions, Inc. (Converge).

“The slowing inflation highlights a still weak economy and anemic consumer demand, tempering market optimism over a seasonal pick-up in household spending during this quarter,” said BDO Chief Market Strategist Jonathan Ravelas.

He noted that, “Investor sentiment remains fragile until we see firmer signs that demand is picking up as the economy further reopens.” In the meantime, Ravelas expects the market to continue consolidating.

 Philstocks Financial Senior Analyst Japhet Tantiangco said “confidence in the local market could remain frail as investors continue to worry over economic headwinds. Concerns over the risks stemming from the Coronavirus pandemic, and the possibility of a delayed passage of the national budget for 2021 may continue to dampen sentiment.”

“With this, the local market may decline further next week. Trading could also be tepid as investors wait for further clues--primarily the third quarter corporate results,” he added.

Online brokerage firm 2TradeAsia.com said that, aside from concern over the budget, sentiment may also be dampened by expectations that the fourth quarter may not see the traditional surge in consumer spending.

Meanwhile, it noted that, “One of the biggest IPOs in recent years (Converge’s P25 billion offering) will start its offer period this week, which may impair liquidity flow to equities.”

“Coupling with near-term risks, investors must be wary of entry and exit points in the face of elevated volatility,” 2TradeAsia.com warned.

Ravelas said last week's close at 5,931.61 “highlights further consolidation within the 5,700 to 6,000 levels in the near-term. This comes after the market failed to stay above the 6,000 level. Expect a retest of the 5,700 levels.”

While the Converge IPO is stirring up interest in the market due to the increased demand for broadband internet services during the pandemic, some market analysts are not too keen on the stock.

Abacus Securities said that, “At P16.80, Converge would be trading at a very wide premium over the two incumbents (PLDT and Globe).”

While “the company is growing at a faster clip,” Abacus noted that, its “elevated valuation would also be unsustainable in the long term.”

“It is important to note that we are only forecasting a 30 percent year-on-year income hike for 2021, as we suspect that a lot of future growth has been pulled forward due to the pandemic.             Furthermore, the incumbents are better equipped and are more than capable to compete in the fixed broadband space,” it added.

 For its part, COL Financial is recommending investors to buy BDO Unibank shares even though “there will be negative sentiment once the bank’s non-performing loan ratio starts increasing in the third quarter.”

 Net interest margin is also expected to be pressured next year as loans gradually re-price amid the low interest rate environment.

“Nevertheless, we believe most of the negatives have already been priced in. We continue to like BDO as we expect it to be one of the major beneficiaries of the economic growth after the effect of pandemic eases,” COL said.