Stock market expected to stay in 7,000 territory
EPISODES of profit-taking could occur this week following the US Federal Reserve’s jumbo rate cut and the Bangko Sentral ng Pilipinas’ (BSP) lowering of bank reserve requirements, analysts said.
The Fed’s 50-basis point (bps) interest rate cut and the 200-bps reduction to the reserve requirement ratio (RRR) for universal and commercial banks helped boost the local stock barometer to a two-and-a-half year high of 7,252.32 last Friday.
Week-on-week, the benchmark Philippine Stock Exchange index (PSEi) added 229.47 points or 3.3 percent.
Friday’s closing was the highest since March 7, 2022’s 7,288.07.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said that the RRR reduction would increase loanable funds and also lower intermediation costs and borrowing costs.
It will “help increase the demand for loans/credit that, in turn, would boost economic/GDP (gross domestic product) growth, for as long as inflation remains well anchored and within the central bank’s target,” he added.
“Furthermore, there will be more supply of pesos that could be invested in the financial markets such as bonds and other fixed income investments, stocks, foreign currencies, property/real estate, among others that would help support price gains than otherwise.”
Philstocks Financial Inc. senior research analyst Japhet Tantiangco noted that the local market was showing bullish momentum.
“Trading activity is building up while foreigners have consistently been net buyers with net foreign inflows running on a 14-day streak,” he said, adding that “the market is trading above its 10-day, 50-day, and 200-day moving averages, while its MACD (moving average convergence/divergence) line is moving upward above the signal line.”
For the week, Tantiangco sees some “episodes of profit taking.”
“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.”
“The peso’s appreciation, if it continues, is also expected to help in sustaining the market’s upward movement,” he added.
The currency this month returned to the P55 per dollar level, but it slipped eight centavos to P55.69:$1 on Friday.
Unicapital Group head of research Wendy Estacio-Cruz said that she expected the peso to stand its ground versus the greenback.
“We forecast [the] peso to trade within the P55-P55.60 range by year-end,” she said.
“If the US Fed cuts rates by a total of 100 bps while the BSP cuts by only 50 bps this year, the divergence in central bank policies may pressure the BSP to either make further rate cuts or adjust other monetary tools, such as reserve requirements, to stimulate growth,” she added.
Estacio-Cruz said the PSEi could continue trading above 7,000 as investors digest the Fed rate cut and as they “expect some capital inflows to Southeast Asian markets.”
Online brokerage firm 2TradeAsia.com, meanwhile, said “expect some short to medium windfall in trading volumes as the extra dry powder from both global and local sources are being poised for deployment.”
The firm advised investors to “stay on the front end of the curve as 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.”
Analysts said that immediate support this week would be at 7,100-7,150 and resistance at 7,400-7,500.