INVESTORS could trade cautiously this week as they balance rate hike expectations against risks posed by the US-Iran war while also awaiting second-quarter corporate results.
The benchmark Philippine Stock Exchange index (PSEi) climbed 1.87 percent week on week to close at 6,404.11 last Friday, buoyed by softer-than-expected US inflation that strengthened expectations the Fed could keep interest rates steady.
Philstocks Financial Inc. research manager Japhet Tantiangco said waning concerns over the US Federal Reserve’s policy outlook had helped sustain market’s momentum.
Subdued trading activity, however, indicates that investor confidence has yet to fully recover.
“The US-Iran war remains the biggest downside risk to the local bourse,” Tantiangco said.
He noted the conflict had pushed Brent crude oil prices back above $80 per barrel, threatening the domestic inflation outlook as disruptions in the Strait of Hormuz raise concerns over global oil supply.
Local fuel prices have been rising and are expected to surge this week.
Tantiangco added that the peso’s continued weakness against the dollar and elevated government bond yields remained headwinds for the market and could weigh on investor sentiment if they persist.
While bargain hunting has fueled a PSEi rally, further gains will likely depend on stronger catalysts.
“The local market managed to rally for three straight weeks as investors took advantage of bargain opportunities,” Tantiangco said.
“For this to be sustained, however, strong catalysts must be seen moving forward. Without such, and with the headwinds at play, we may see a pullback for the local bourse...”
Tantiangco added that investors would be looking at second-quarter corporate earnings results for the market’s next potential catalyst.
Meanwhile, online brokerage 2TradeAsia.com said easing US inflation had provided temporary relief to financial markets, but warned that inflation risks remained due to higher crude oil prices.
The brokerage noted that the softer inflation reading largely reflected earlier declines in energy prices, while renewed tensions in the Middle East had pushed oil prices back toward the $80-per-barrel level.
It also said the softer US inflation print had reduced the immediate need for the Bangko Sentral ng Pilipinas to raise policy rates to support the peso, although local yields are expected to remain elevated as a buffer against imported inflation risks.
Given the current environment, 2TradeAsia recommended gradually accumulating energy and digital infrastructure stocks, including power-related holding firms and select telecommunications and property companies with data center exposure, while remaining cautious on richly valued consumer stocks that could be pressured by higher fuel costs.
From a technical perspective, Tantiangco said the market remained bullish after closing above the 6,400 resistance level. He said the index could retest that level this week. If it holds, the next resistance was seen at 6,550.
