Tensions in the Middle East is threatening to stop the stock market bull in its tracks although the low September inflation may continue to boost investor sentiment as it may lead to lower interest rates and higher consumer spending.

Philstocks Financial Research Manager Japhet Tantiangco said that, amid episodes of profit taking, trading activity has been waning—implying diminishing conviction while technical indicators may signal bearish momentum.

“On a positive note, the below expected inflation print of the Philippines for September is seen to boost market sentiment due to its positive implications on the local economy. 

“The low inflation figure could mean stronger household consumption which would benefit our overall economic growth given its significant contribution. The low inflation also strengthens the case for the continuation of the BSP’s monetary policy easing,” he added.

However, Tantiangco said “Tensions in the Middle East are seen as a downside risk to the market however. An escalation of tensions are expected to raise oil prices and cause negative spillovers to the rest of the global economy. Hence it is expected to weigh on sentiment.”

Meanwhile, he said “investors may also watch out for upcoming data including our labor force survey, foreign trade, and foreign investments data for clues on the local economy.”

For its part, 2TradeAsia.com said that, “With favorable inflation dynamics, speculation is high for what could be a 50bps rate cut from the BSP in as early as this month (Oct 17 Monetary Board meeting).”

“Positioning towards sectors that will benefit from the constructive impact of lower rates is reiterated, with a more immediate focus to exporters, cyclicals, and banking, amid the current forex advantage and sharply improved consumer confidence heading well into the fourth quarter,” the stockbrokerage said.

It noted that, while there could be windows for quick gains in the short-term as “major capital influx may excessively compress risk premiums, long-term positioning is encouraged in light of structurally better data and fundamentals at present.”

For stock picks, COL Financial is looking at consumer companies which have so far underperformed the market this year as rising inflation dampened consumer spending.

With inflation already on the way down and expected to stay low for the rest of the year, consumer outlook is also improving and COL expects this to improve further as inflation and interest rates are headed lower. 

COL said consumer companies that it likes right now that are still trading at very cheap valuations include D&L Industries, Monde Nissin Corporation, Puregold Price Club, and Robinsons Retail Holdings Inc.

“These companies could potentially outperform the market as inflation continues to go down and as rotation to cheaper stocks continues,” it noted.