WEEKLY SHARES OUTLOOK

A Fed rate hike may prompt ‘Santa Claus’ rally

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A US interest rate increase may spur a rally in emerging markets, including the Philippines, as it would erase once and for all the worries about capital flight investors have been nursing since early this year once the Federal Reserves pushes the button for a rate lift-off.

The policy-setting Federal Open Market Committe is holding a meeting on December 13 to 14.

Since the PSEi reached its year’s high at the 8,100 level in July, the market has traded at a downtrend to the 6,700 territory, but recently recovered at the 7,000 level.

The Fed earlier said a rate hike would depend on the capacity of US economy generate jobs and other positive economic data.


RCBC Securities Inc. Research Analyst Anton Alfonso said the market trade sluggishly early this week but that a rate hike would ease investor concerns.

“Investors may look to return to the sidelines early next week, with the US Fed’s policy meeting beginning on Dec 13, but we expect a relief rally if in fact the US Fed raises interest rates,” Alfonso said.

Online brokerage 2TradeAsia.com noted a “97 percent chance of a Fed rate hike on December 14,” which may allow investors to regain confidence.

“This would help investors and fund managers realign portfolios with the new level of cost of money and prepare an equity strategy before 2017 starts,” 2TradeAsia.com said.

“Local equities could finish 2016 on a positive note (+3 percent from January) despite the change in political guards locally and in the US,” it added.

But before investor “become too optimistic for a possible Santa Claus rally,” they must first weigh on the impact on emerging markets like the Philippines of another 25-basis point increase next year in the US.

While monetary tightening indicates the US economic recovery is on track, a similar move may be considered by local monetary officials to keep the switch toward higher yiedling US instruments in check. “For now, fund managers are unlikely to go underweight in their emerging market positions on the back of high-growth opportunities in the region,” 2TradeAsia.com said.

Luis Limlingan, managing director of Regina Capital Development Corp., said the first one to two trading days of the week will be crucial.

“How the index reacts at resistance will move until the year end. A successful breach will sponsor advances towards the 50-day moving average or 7,246, with a maximum upside at 7,300,” Limlingan said.

“On the other hand, failure to break out will induce another round of corrections to the 20-day moving average or 6,900. But take note that since overall technicals of the index remain below trigger points, a slight bearish bias is given on this week’s trend. A consolidation between 6,900 and 7,100 should provide stability since a fresh support base will be established,” he said.

“With all factors considered, we maintain our cautious outlook by selling into rallies, especially for issues that are still technically bearish. But on the positive side, the index’s recovery is also triggered by short-term buy setups which traders can utilize, given the index’s high volatility condition,” he added.

2TradeAsia.com noted that market players will be eyeing the performance of the maiden listing of Shakey’s Pizza Asia Ventures Inc. (SPAVI) on the Philippine Stock Exchange on Dec 15, under the ticker symbol PIZZA.

“The probability for the market to keep its head above the 7,000 level might be upheld this week, sans any disruption that might stem from political headlines. Players might be eager to watch the listing of PIZZA on December 15, in the absence of other leads,” the online brokerage said.

SPAVI is selling 352 million shares, including an oversubscription option for 46 million shares. The offer period was on December 2 to 8.

This is the fourth and last initial public offering (IPO) for 2016 after Golden Haven Memorial Park Inc.’s P778 million IPO in June, Cemex Philippines Holdings Corp. in July (P25 billion), and Pilipinas Shell Petroleum Corp. in November (P18.425 billion).

On Friday, the PSEi gained 20.78 points or 0.30 percent at 7,043.16, while the broader All Shares index advanced by 7.76 percent or 0.18 percent to 4,229.39.

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