• AS FED LIFTS CAP OFF YIELD RATES

    Market volatility to keep PSEi at the 6,800 level

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    THE bellwether PSEi is expected to trade at the 6,000 levels towards the close of 2016 given the volatility in global markets, including the Philippines, as the Federal Reserve makes make the much-awaited decision on interest rates.

    Financial markets would continue to remain volatile, Ed Francisco, president of investment bank BDO Capital & Investment Corp., told reporters last week.

    “I would be very happy if we can hit 7,000 by the end of the year, but at the rate we’re going, it is not likely. But we’ll see,” Francisco said.

    Expectations of a of 25- to 50-basis point increase in the Fed fund rate has been factored in by investors and fund managers, but the wild swings in share prices are coming from speculations of multiple rate increases in 2017.

    “If the rates really go up in the states then hot money will go back to US. But here in the Philippines, we’re less vulnerable, there is more local activity, and we’ll be protected. The losses will be cushioned,” Francisco said, noting the near 50-percent ratio between local and foreign investors in the market.

    Hans Sicat, president of the Philippine Stock Exchange (PSE) noted the equity market would “still be very volatile for the rest of the year” as investible funds move back to the US from the emerging markets.

    “I think we’re just going to be up and down the rest of the year because of the volatility of the peso, interest rate hike, volatility in the global markets; and of course, there’s been a rotation in the emerging markets including the Philippines, Sicat noted.

    Some fund managers have already realized and locked in their gains,” he added.

    Despite the window dressing the would happen, Francisco noted such attempts to make stock portfolios look more appealing may not be enough to carry the PSEi in positive territory as the year draws to a close.

    “Unofficially, there would be rallies within the last few business days of the year because of the window dressing. They would keep their shares afloat, but not enough to bring the index back to higher levels. You would likely see less volume, but you’ll notice a surge in stock value,” Francisco said.

    “People will be cautious, because stocks are very volatile, and it will carry over until the end of the year—but with selective buying,” he added.

    He recommended buying into stocks with good cash flows that ride onto the country’s demographic dividend and consumer spending.

    The stock market may be “vulnerable” at present due to the impending US rate hike, but not so with the bond market, Francisco noted.

    He said local yield rates and borrowing costs may rise after the US rate hike, but issuers will take advantage of the low rates before the hikes through long-term borrowing via shelf registration.

    The main PSEi hit an intraday low of 6,700 last week, but managed to close up 0.24 percent or 16.47 points at 6,889.78 on Friday —an 8-month low.

    For his part, Justino Calaycay Jr., head of marketing and research at A&A Securities Inc., said that the market will continue to chew on volatility due to the uncertainties in the global scene.

    “Uncertainty—that provides a simple explanation to why the market appears to have fallen into a negative spiral. Not even a robust 7.1-percent GDP [gross domestic product]growth in the third quarter and an equally decent corporate earnings cycle for the period was able to temper the sentiment,” Calaycay said.

    “On one hand, this could be seen as a buying opportunity as the market doesn’t seem to properly reflect the outlook. On the other, it could be that the market is expecting things to get worse going into 2017,” he said.

    A bit of “confidence” might kick in during the last few days of 2016, stimulated by a Santa Claus rally, Calaycay added.

    Regina Capital Development Corp. Managing Director Luis Limlingan expects a rally after the Fed policy.

    “I see flattish to downward trading for the rest of the year. There would be a bit of a rally after the decision on the Fed rate hike comes out,” Limlingan said in a text message.

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