The Philippine stock market succumbed to foreign fund outflows in August, prompted by the likelihood of an interest rate hike in the US before the year ends year, as well as the rebalancing results of the MSCI quarterly index.
Rabboni Francis Arjonillo, president of investment bank First Metro Investment Corp. (FMIC), noted the volatility is seen to continue due to the lack of catalysts that can perk up the markets, with the Fed rate hike at the center of attention.
“The expectations of a Fed rate hike, uncertainties surrounding the Brexit, and the upcoming US Presidential elections [in November]may weigh on investors’ sentiment. Furthermore, lack of re-rating catalysts may also dampen risk appetite.,” Arjonillo said in the August issue of the FMIC and University of Asia and the Pacific’s (UA&P) monthly capital markets research “The Market Call.”
“We think the strong GDP growth and election-boosted corporate earnings have already been incorporated in present prices,” he said.
The PSEi lost 175.7 points or 2.2 percent in August alone, on the back of the MSCI rebalancing and the mixed corporate earnings results in the first half of the year.
A consensus among analysts indicates that the Fed would not likely raise rates this month, but go for a lift off in December.
In case of a Fed rate hike this year, Rabboni said FMIC and UA&P expect that PE ratios “should be de-rated” as yields of risk-free assets normalized, while the inflows to the local market “pause or reverse” as funds turn to more developed markets like the US.
Despite the sell-off, Rabboni said this was “good entry point to position for next year” as stock prices are expected to trudge toward a more positive level for the rest of the year and in 2017.
FMIC and UA&P retained its recommendations, advising investors to stock up on issues in the consumer staples sector, high dividend stocks, as well as shares with low price-to-earnings (PE) ratios or “growth stocks.”
In terms of sectors, data showed that all of the sectoral indices registered declines in August, led by Mining and Oil (-4.8 percent) and Services (-4.6 percent),
The Holding Firms sector dropped 2.2 percent in the same month due to extensive profit-taking in conglomerates’ gains the past few months, while the Industrial sector fell by 1.7 percent as the government sought to tax unhealthy consumer products, particularly sugar-based beverages and fatty foods.
The Financial and Property sectors, on the other hand, posted slight decreases with the financials down 0.2 percent as the central bank kept policy rates steady, while the Property sector fell by 0.7 percent on profit-taking in select stocks.
The total turnover slightly declined by 0.6 percent in August from the 5.4 percent improvement the previous month.
Net foreign buying dwindled by 80.2 percent to P3.2 billion during the month, primarily in the last two trading days in August when 40 percent of the foreign outflows was observed.
FMIC is the investment bank of the Metrobank Group. It specializes in a wide array of services in equity and bond markets, and publishes monthly and periodical reports and researches.