Stocks to remain in corrective mode

By EDU H. LOPEZ

 

Weakness in the major markets abroad, particularly in Wall Street, would continue to dampen the mood of investors, who are still waiting for stocks to correct to more reasonable and attractive levels.

 

AB Capital Securities expects stock trading to slow down this week after extremely volatile weeks of ups and downs.

 

"Fundamentally, the market is also going to be wary about the prospects of higher interest rates. The recent inflation data in the US point towards another rate hike for the US FOMC in June."

 

"This is already putting pressure on the peso and the equities market.

 

Another Fed increase may force the hands of the Bangko Sentral ng Pilipinas to raise overnight rates here," says AB Capital.

 

"This shouldn’t surprise the markets since the government has been saying that domestic interest rates are too low. The main index’s initial support is seen at the 50-day exponential moving average line of around 2,300."

 

The local market declined last week as the US market’s 214-point drop on Wednesday brought world markets on its knees.

 

The PSEi lost 162 points or 6 percent in value this week but managed to hold above the 2,350- support mark. This was the level before the massive two-day gain early this month, and is already a 10 percent correction from the recent high of 2,602.

 

AB Capital Securities noted that investors were unnerved by the Dow’s 2 percent decline, which resulted in a domino effect on other global markets.

 

It was the Dow’s biggest one-day percentage decline since January, caused mainly by higher than expected inflation for April.

 

Consumer prices in the US rose 0.6 percent last month, higher than expectations of 0.5 percent.

 

"More significantly however is the fear of a further rise in US interest rates given the remarks of Fed Chairman Ben S. Bernanke that they would closely monitor data to set future rate policy. The Fed just last week raised the benchmark-lending rate for the 16th straight time to 5 percent," says AB Capital.

 

BPI Securities says market positivism continued as the index posted a 21-point gain in today’s trading; intraday, the Phisix had hit a low of 2415, close enough perhaps to the 2400 support level to spur renewed buying.

 

Index gainers were led by PLDT, Ayala Land, Globe Telecom and Jollibee Foods. The market’s recovery from what a rather shallow correction has been a pattern repeated. Buying has been strong enough for the market to shake off any correction within a relatively short period of time.

 

While foreign participation has thinned, enough liquidity and demand have remained to see the market higher following a good enough correction, BPI added.

 

http://www.mb.com.ph/BSNS2006052264722.html