The local stock market may see initially some profit-taking this week following its recent rally although sentiment remains generally upbeat and will continue to buoy share prices.

“The local market has been showing bullish momentum, rising for three straight weeks, with the latest one getting it past the 7,150 resistance level,” said Philstock Financial Research Manager Japhet Tantiangco. 

He noted that, “Trading activity is building up while foreigners have consistently been net buyers with net foreign inflows running on a 14-day streak.”

While most technical indicators point upwards, Tantiangco said the 14-day relative strength index indicates that the market is already at overbought territory.

“Given the three-week rally together with the RSI indications, we may see some episodes of profit taking next week. However, the market may still end next week on a positive note as the dovish monetary policy outlook of the BSP and the Fed may continue to uphold optimism,” he added. 

Tantiangco also said that, “The Peso’s appreciation, if it continues, is also expected to help in sustaining the market’s upward movement. 

“Next week, investors may also watch out for the BSP’s upcoming business and consumer expectations survey for clues on the local economy.”

Online brokerage 2TradeAsia.com said investors should “Expect some short to medium term windfall in trading volumes as the extra dry powder from both global and local sources are being poised for deployment.”

“The local bourse has successfully hit the 7,200 level for the first time since 2022, this time backed by a clearer path towards lower rates up to 2026, tame inflation, and more grounded forward valuations (14 times forward earnings),” it noted. 

The brokerage cautions investors though that, “there is still some distance before rate changes truly impact household fundamentals and influence corporate actions; hubris is the downfall of the overly exuberant investor.”

COL Financial also warned that, “Despite the positive implications of lower interest rates and the strong performance of the market so far, we would like to reiterate our view that the rate cut is largely priced in.”

“Moreover, while there were instances in the past where stocks continued to go up despite Fed rate cuts, this only took place when the U.S. avoided a recession. At present, the risk of a recession remains elevated.

“As such, we are not confident that the market can sustain its strong performance. Active investors should take advantage of the market’s current strength to raise some cash, lock in gains on strong issues that are no longer cheap in terms of valuations and rotate to fundamentally attractive stocks that are still trading at cheap valuations,” it advised. 

COL said “A stock that investors can still buy to take advantage of the ongoing rotation is PLDT. After rallying strongly up to the middle of August this year, TEL has been going down for the past few weeks despite the strong performance of the stock market.”

“We believe that the large part of its weakness is attributable to its upcoming removal from the FTSE Asia Pacific Ex Japan Ex China large cap index effective Monday, September 23. 

“This creates an opportunity for retail investors to buy shares of stocks that were removed at a much cheaper price since they are not required to track any index,” it explained.

COL also has a BUY rating for Manila Electric Company after raising its profit forecast for the utility and factoring its acquisition of SP New Energy Corporation.

“We also like MER as its profitability is least vulnerable to the risks facing the power industry (volatility in WESM and commodity prices and unplanned outages) because bulk of its profits come from the distribution business,” it added. 

Meanwhile, Abacus Securities Corporation is advising investors to buy AREIT shares aggressively following reports that Ayala Land is placing out an additional 75 million AREIT shares, possibly in preparation for another asset injection.

This may result in a decline in AREIT’s market price but Abacus believes this creates an opportunity t buy since “There is the tailwind from more rate cuts as well as RRR cuts through 2025. We also reiterate that AREIT is the front runner to replace Nickel Asia in the PSE index in January or February.”