Despite the signing of the United States (US)-Iran peace deal, local stock market investors are advised to remain cautious as the Philippine Stock Exchange’s (PSE) benchmark has lost its momentum amid concerns over lingering inflation and rising interest rates.

“Failing to take 6,150, the local market gave up some of its grounds last week, falling back near the 6,000 support line. The loss of momentum implies that investors are not yet fully confident with risky assets amid downside risks to the general economy,” said Philstocks Financial Inc. research manager Japhet Tantiangco.

While oil price pressures are currently easing amid the interim deal between the US and Iran, the situation remains fragile, and a reignition of tensions between the two, which could lead to a rebound in oil prices, is expected to pose upside risks to inflation.

Also, Philippine inflation faces upside risk due to the El Niño phenomenon, which is expected to weigh on agricultural production. With food supply at risk, the inflation outlook remains elevated.

“Amid upside risks to inflation, both from the demand and supply side, the Bangko Sentral ng Pilipinas (BSP) is seen to remain hawkishly biased with its policy. This would be a downside risk to the local market,” Tantiangco said.

With inflation and interest rates rising, government underspending, and offshore geopolitical risks lingering, the local economic growth outlook has weakened, negatively affecting corporate performance prospects.

“Catalysts are yet to be seen. Without any positive developments, the market remains without a driving force that could help it sustain a rally. Chartwise, the local market is exhibiting a bearish bias after peaking at 6,396.23 last June 16,” Tantiangco noted.

Online brokerage 2TradeAsia.com said the US-Iran interim agreement has removed the immediate geopolitical risk premium from energy, bringing West Texas Intermediate (WTI) crude back toward $70 a barrel.

“While this is fundamentally positive for net energy importers such as the Philippines, it has not yet translated into a clean equity rally. Instead, we are seeing a reassessment of growth and duration risk globally, which we expect to stay well until the fourth quarter, when transmission lag and second-round effects will be more tangible,” the brokerage explained.

It added that short-run sentiment is also held back by recent pressure on high-multiple US technology names in artificial intelligence (AI) plays, capping fund flows into emerging market (EM) assets even as the immediate inflation threat recedes.

“The local initial public offering (IPO) pipeline is also set to mop a historic amount of liquidity. We anticipate upcoming landmark listings (Mynt, VITRO, combined ₱120 billion in capital raise) at home to be our own liquidity vacuum, even more pronounced in a regime where average daily trading volumes are already subdued and foreign fund participation is low,” 2TradeAsia.com said.

It noted that, “Institutional desks will likely fund these by rotating out of existing mid-cap holdings, creating an overhang on the broader secondary market.”

For stock picks, RCBC Securities Inc. is recommending San Miguel Food and Beverage Inc. (SMFB) even though negative economic developments have heightened inflationary pressures through elevated oil prices, logistics costs, and supply chain volatility.

“We believe these pressures are manageable given SMFB’s diversified portfolio, strong domestic brand base, pricing power, and operational scale. The food category demand is expected to remain healthy, while discretionary beverage consumption may soften if current market conditions persist,” RCBC Securities noted.