The local stock market remains bearish as its rally last week was seen as just a dead cat bounce, not based on a change in sentiment.
“Inflationary pressure and geopolitical risks are starting to permeate global markets more deeply; central banks are becoming less aggressive on previously communicated rate cut paths (including the Bangko Sentral ng Pilipinas); and trade war threats plus weak EU and China output are adding to the headwinds in emerging markets,” said 2TradeAsia.com.
It explained that “a restart in the global rate cycle (i.e., a consistent downward trend of interest rates) has been the spring well that fueled local equities toward one of their best quarterly performances in the third quarter.”
Thus, 2TradeAsia.com said, “A gradual evaporation of this same 'well' is likely to prompt a deceleration in activity until data points – such as inflation, deficit, and foreign exchange stability, among others – drive the needle back to previous assumptions.”
“The silver lining is that the overall direction remains dovish, although the magnitude and speed of cuts have scaled back significantly since the third quarter and are now being reflected in forward valuations,” it added.
However, 2TradeAsia.com said weak global growth projections highlight the relative value of strong, consumption-driven economies whose monetary policies still have room to adjust in case of a downturn.
Philippine gross domestic product growth is seen at around 6 percent next year, still regionally strong. Improved inflation and interest rate configuration at the start of next year should help brace the corporate outlook before midyear elections.
Under this scenario, 2TradeAsia.com said securities with excess returns are slightly more challenging to find and advises investors to “stay selective on trades, acknowledging that with an intact earnings trend, some issues are now trading at extremely discounted multiples because of the rout.”
Philstocks Financial Research Manager Japhet Tantiangco noted that trading activity during last week’s rally was thin, reflecting tepid conviction. Market confidence is not strong enough yet amid lingering headwinds and a lack of fresh leads.
“The local market remains at attractive levels. Hence, we may still see bargain hunting in next week’s trading. However, investors are still expected to maintain a cautious stance while waiting for fresh catalysts. The peso’s weakness against the US dollar, if it persists, especially if it breaches the P59.00 level, may weigh on the local bourse,” he added.
Last Friday, the local stock market declined due to concerns over the weakening peso and the escalating conflict between Russia and Ukraine.
The main index fell by 82.88 points, or 1.21 percent, closing at 6,780.13. Conglomerates led the retreat, while the mining sector managed to resist the downward trend. Trading volume decreased to 605 million shares, valued at P3.15 billion, with losing stocks outnumbering gainers by 108 to 76, and 64 remaining unchanged.