The Philippine stock market is expected to remain cautious and bearish as investor sentiment stays tied to developments in the Middle East and the impact of the conflict on the domestic economy.

“The local market is expected to move with a bearish bias this week as it deals with the Philippines’ challenging economic outlook. The market is also expected to continue monitoring the developments between the United States (US) and Iran,” said Philstocks Financial Inc. research manager Japhet Tantiangco.

He noted that with inflation expected to remain elevated in the immediate to medium term, household consumption—and ultimately the broader economy—may continue to suffer.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) has indicated that it is prepared to take further action to control inflation, spelling additional challenges for economic growth.

Tantiangco also said the government’s tempered public infrastructure spending, if sustained, may not provide enough support for the local economy.

At the same time, the situation between the US and Iran remains volatile despite the existence of a ceasefire, as hostilities between the two countries’ armed forces continue to flare up.

Tantiangco said rising inflation and higher interest rate expectations have pushed local treasury yields upward, noting that “if the peso sustains weakness and the yields continue to rise, it will pose an additional challenge to the equities.”

The market may also take cues from the release of foreign direct investments (FDIs) and overseas Filipinos’ (OFs) remittances data by the BSP on May 12 and May 15, respectively.

Unicapital Securities head of research Wendy Estacio-Cruz expects the Philippine Stock Exchange index (PSEi) to trade sideways to cautiously lower this week as investors remain focused on inflation risks, BSP policy expectations, slowing gross domestic product (GDP) growth, and global geopolitical developments.

“Sentiment may stay fragile following the recent spike in inflation and renewed concerns over additional rate hikes, while concerns over softer economic growth, a weak peso, and elevated oil prices could continue to limit risk appetite. However, bargain hunting may emerge on oversold blue chips, especially if global markets stabilize,” she said.

Online brokerage 2TradeAsia.com said, “Local sentiment remained dour following a staggering 7.2-percent April inflation print, fueled primarily by persistent oil shocks and escalating tensions in the Middle East.”

Thus, the brokerage advised investors to maintain a defensive posture, prioritizing high-yield defensive stocks amid a steepening yield curve.

“While the current backdrop is discouraging, these periods of maximum pessimism often provide entry points for long-term value and yield locks. Stay liquid and vigilant for any policy shifts that could serve as a floor for valuations. The antidote to market noise is quiet conviction,” it added.

For stock picks, Abacus Securities Corp. said Gokongwei-led Universal Robina Corp. (URC) is ripe for slow accumulation at current levels since the worst appears to be over for the stock after it delivered stable first-quarter results despite market pessimism.

For its part, COL Financial Group Inc. maintained a BUY rating on Wilcon Depot Inc., saying the firm’s near-term outlook remains supported by healthy demand readings, while its dividend declaration reflects strong underlying cash flow generation.