THE Philippine stock market's recovery faces a crucial test this week as investors await third-quarter economic growth figures, with elevated inflation and interest rate concerns threatening to temper improving sentiment.
The benchmark Philippine Stock Exchange index (PSEi) gained 81.60 points, or 1.44 percent, last week to close at 5,761.95, supported by easing global oil prices and a stronger peso following the victory of Democrats in the US midterm elections.
However, analysts said trading could remain volatile as investors assess whether economic growth has improved enough to sustain the market's rebound.
The Philippine Statistics Authority is scheduled to release third-quarter gross domestic product (GDP) data on Monday.
Japhet Tantiangco, Philstocks Financial Inc. research manager, said the market's gains would be tested by the economic growth figures, with a reading below the revised 2.4-percent expansion in the second quarter potentially weighing on sentiment.
A stronger-than-expected result, meanwhile, could provide further support to equities, he said.
F. Yap Securities Inc., through its 2TradeAsia.com research team, estimated third-quarter GDP growth at 2.3 to 2.7 percent, citing the potential contribution of exports and public infrastructure spending.
The brokerage warned that growth of 2.3 percent or lower could strengthen expectations of a 50-basis-point interest rate hike by the Bangko Sentral ng Pilipinas (BSP) in December.
It also advised investors to remain defensive ahead of the central bank's Dec. 17 policy meeting, favoring cash accumulation during market rallies and trimming exposure to companies with rising debt or substantial capital expenditure commitments.
Toby Allan Arce, head of sales trading at Globalinks Securities and Stocks Inc., expected the market to maintain a cautiously positive bias, although investors would likely favor selective bargain hunting rather than a broad-based rally.
"I expect the Philippine stock market to remain volatile but with a cautiously positive bias next week, following the PSEi's 1.44 percent recovery to 5,761.95," Arce said.
"The rebound suggests that investors are beginning to take advantage of depressed valuations, although Friday's modest pullback indicates that conviction remains fragile," he added.
Arce said banks, consumer companies and major holding firms would remain in focus as investors assess whether corporate earnings could withstand higher financing costs and pressure on household purchasing power.
External developments could also influence trading, particularly movements in oil prices, US Treasury yields and the peso. A sustained decline in oil prices and a more stable peso could ease inflation concerns and support equities, while renewed currency weakness or higher global yields could reverse recent gains.
On the technical side, Tantiangco said the PSEi could trade between its 10-day exponential moving average and the 5,800 resistance level. A decisive break above 5,800 would signal improving market momentum, while a fall below its 10-day moving average could indicate that the bearish trend remains intact.
Arce placed initial support at 5,700 to 5,720, followed by 5,650, while identifying 5,780 to 5,830 as an important resistance zone.
A sustained recovery would require stronger trading activity, broader market participation and greater confidence in the domestic economic outlook, he said.
