PHILIPPINE shares are likely to trade within a tight range this week as the market continues to digest the implications of the central bank’s rate hike announcement last week.
Alexander Tiu, analyst at AB Capital Securities Inc., said in a weekly market outlook that he expects shares to pull back from their recent highs due to the effects of the central bank’s rate hike move.
On Thursday, the Bangko Sentral ng Pilipinas (BSP) raised its overnight borrowing and lending rates to 4 percent and 6 percent, respectively, and raised the interest rate on special deposit accounts (SDA) by 25 basis points (bps) in move meant to ward off inflation risks.
“The interest rate hike by the BSP is seen as bearish to equities in general, negatively affecting stock market liquidity and attractiveness. The rate increase also negatively affects both the top line and bottom line [revenue and net income]of businesses,” Tiu said.
He explained that a tighter monetary policy discourages consumer spending, which can result in lower sales. It can also affect a company’s finances through higher interest expense.
“As such, we might expect a pullback in the succeeding weeks as the effect of higher lending rates are priced in,” Tiu said.
Tiu sees support at 7,200 points and resistance at 7,300, adding that if the market drops beyond the 7,200 support, the main index might slump further to 7,000, while a strong rebound from current levels suggests “a re-testing to the previous high of 7,330.”
In its weekly forecast, Bank of the Philippine Islands said the market is expected to trade within a tight range this week at 7,170-7,300 as “investors reassess their positions following BSP’s surprisingly aggressive tightening actions and given the expectation of a rate hike by the Federal Reserve” when US Federal Reserve officials meet on Thursday.
Despite a projected medium-term consolidation, analysts still see intact an upward trajectory of the market for the last two months of the year. Miguel Agarao of Wealth Securities Inc. said that the Philippine Stock Exchange index (PSEi) might breach the all-time high record of 7,400 points by November or December.
On Friday the market ended flat, which was mostly attributed to the much expected BSP rate hike. The benchmark stock index was off 0.18 points or 0.003 percent at 7,201.88 while the All Shares index inched up 2.99 points or 0.07 percent to 4,259.69.