The local stock market is seen to continue being weighed down by concerns at the economic front while investors wait for first half earnings results.
“While we see bargain hunting opportunities, next week, investors are still expected to maintain a cautious stance amid lingering economic concerns,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.
He noted that, “Worries over a possibly aggressive policy response by the Federal Reserve in their July meeting, following the US' hot June inflation, may continue to weigh on sentiment.”
“Adding to this is the concern over a possible further tightening of the Bangko Sentral ng Pilipinas in their August meeting after a surprise 75 basis point rate hike this week,” Tantiangco said.
He added that, “Investors are also expected to monitor the Peso. A further depreciation of the local currency is also seen to dampen sentiment.”
“Volatility remains the prevailing theme across markets. The ESP making an off-cycle move after the US printed a record-high 9.1 percent inflation is the most recent indication that concerns we have had since the first quarter (protracted inflation and disrupted global supply chains) are beginning to show real staying power,” said 2TradeAsia.com.
It noted that, “While this damages the short-to-medium term outlook on practically any asset that takes on capital, the move should reassure long-term holders that policymakers are not taking the risk of carrying over these pains in 2023.”
“This leaves room for the peso to depreciate towards P60.00 a dollar, corporate margins to deteriorate further in the third quarter, and a demand cooldown from lower liquidity,” the brokerage said.
A silver lining amid all this gloom is “the possible continuation of the decline in local fuel prices is seen to temper inflation expectations which in turn would help the local market,” said Tantiangco.
“Finally, investors are expected to watch out for our second quarter earnings reports to gain clues on how the corporate sector performed amid the lingering economic challenges, primarily the rising inflation during the said quarter,” he said.
“As economic headwinds continue to chip on investor confidence, note that longevity in trading is less dependent on market quality as it is on asset quality, which is to say, there should be some pockets of value even in the direst of markets. The challenge is to scour with objectivity,” said 2TradeAsia.com.
Meanwhile, COL Financial believes that, “The worst may be over soon as far as inflation, interest rates, and the peso are concerned. The main reason is falling commodity prices.”
“If demand continues to weaken then commodity prices can sustain their downtrend, making inflation a non-issue,” said COL Chief Equity Strategist April Tan.
She noted that, “because of signs of weaker demand, more and more economists now believe that the U.S. could suffer from a recession soon. If this happens, then inflation would stay down, prompting the U.S. Fed to stop raising rates and potentially even cut rates.”
Tan said “Lower inflation coupled with a more dovish Fed should also help the peso stabilize since the strength of the U.S. dollar is one of the main reasons for the peso’s sharp depreciation recently.”
She said “Fixed income assets such as bonds and REITs will be the main beneficiaries of falling inflation and interest rates. This is because prices of bonds and REITs will immediately go up once interest rates drop as newly issued bonds and REITs will offer much lower yields.”
“Sentiment for consumer stocks should improve significantly as a result of falling commodity prices because they are among the main bene ciaries of lower costs and recovering demand,” Tan noted.
She added that, “Because of this, we are adding three consumer names to our stock pick list – SM Investments Corproation, Universal Robina Corporation, and D&L Industries.”
Noting the descent of palm and soya oil prices, Abacus Securities Corporation said “It is likely that prices for edible oil are slowly normalizing after fears of supply shocks earlier this year and hopefully this could help manage inflation and food prices not only in the country but globally.”
“This should be positive for heavy palm oil users such as Monde Nissin Corporation, URC, and DNL,” it pointed out.