INVESTORS could trade cautiously this week amid renewed tensions in the Middle East and a shift in focus to second-quarter corporate earnings.
The benchmark Philippine Stock Exchange index (PSEi) climbed 1.59 percent week-on-week to 6,286.70 on Friday, buoyed by bargain hunting, easing June inflation and sustained foreign buying.
Analysts, however, said the rally could be tested by lingering macroeconomic risks.
“While the past two weeks have been positive due to bargain hunting, downside risks are still seen for the local bourse,” Philstocks Financial Inc. research manager Japhet Tantiangco said.
He noted that the market’s gains were accompanied by relatively light trading activity, with average daily value turnover reaching only P5.55 billion last week, suggesting that the advance lacked strong conviction despite six straight trading sessions of net foreign inflows totaling P3.76 billion.
Tantiangco added that investors would continue to monitor developments in the Middle East, where a ceasefire between the US and Iran has been shattered, potentially leading to a renewed rise in global energy costs.
He also warned that inflation remained a key concern despite June’s slowdown to 6.4 percent from 6.8 percent a month earlier, noting that price growth is still well above the government’s 2.0- to 4.0-percent target.
“Upside risks to inflation including global oil price volatility, El Niño and inflation expectations also remain on the table,” Tantiangco said, with further monetary tightening by the Bangko Sentral ng Pilipinas (BSP) also possible.
He likewise cited the peso’s bearish bias and elevated Treasury yields as additional headwinds that could pressure equities.
Meanwhile, online brokerage 2TradeAsia.com said the market could take a breather this week as investors review first-half corporate results and position ahead of the second-quarter earnings season.
Although headline inflation eased in June, the brokerage pointed out that core inflation had accelerated to a 31-month high of 4.4 percent from 4.1 percent, signaling broader underlying price pressures and reinforcing expectations that the BSP’s tightening cycle is not over.
The resurgence of geopolitical risks to oil prices could also keep inflation elevated and limit the central bank’s room to ease.
With second-quarter earnings set to be released in the coming weeks, 2TradeAsia recommended selective positioning in companies expected to deliver resilient results.
It said banks were likely to post stable net interest margins despite the recent waiver of electronic fund transfer fees, while energy companies could benefit from higher oil prices.
The brokerage also identified holding firms as attractive opportunities, noting that many conglomerates are continuing to trade at significant discounts to their net asset values.
For the week, investors are also expected to watch key economic data, including US inflation, producer prices and retail sales, as well as Philippine remittance figures for May.
