Profit taking ahead of IPO

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Share prices are likely to ease this week for two reasons. One, investors might begin liquidating their positions and shore up funds for one of the biggest initial public offerings (IPOs) in the country; and the other, waiting for the new administration’s economic team to get down to work and show the direction in which it intends to move.

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Joseph Roxas, president of Eagle Equity Inc., thinks that the local bourse may experience in the short-term some market consolidation as the IPO of Cemex Holdings Philippines Inc. starts offering its shares today (Monday).

“There would be some market consolidation this week and until, probably, next week,” he said. With a big IPO taking place, investors, he said, are liquidating their positions so that they could buy the new issue coming on the market. “That’s always the case when there is an IPO, especially as big as this [Cemex],” he added.

Some analysts were, meanwhile, skeptical about the impact the Cemex IPO can cause because the money raised through the IPO is for paying off debts.

“What’s wrong with that,” asked Roxas. When debts that are yet to fall due and demandable are prepaid, “you save substantially in the form of interest of 5-6 percent a year, that would translate into P1-1.5 billion savings,” he pointed. That, he said, would be good for the company, because “it would augment its net income and would improve its financial position.”

The change of national government leadership is also a key factor, according to Roxas.

Explaining that it would take a few weeks for the cabinet members of the new administration “to get into the thick of things,” he said that investors are waiting to see how the new economic managers of the nation will perform both individually and collectively.

Last Thursday, when Rodrigo Duterte took office as the president of the country, the benchmark Philippine Stock Exchange Index (PSEi) gained 200 points or 2.36 percent week-on-week and closed at 7,830.35 in hectic trading with total turnover rising 5.27 percent to P8.16 billion.

In a weekly report, 2TradeAsia.com, said that although the main board is expected to enjoy a boost from the new administration’s policy of increasing fiscal spending and honoring existing contracts concluded by the former administration, it would stay with its 6.3 percent GDP growth outlook for 2016. However, it expects improvement in the fourth quarter as construction efforts might be delayed with the onset of the rainy season.

The PSEi could, meanwhile, move within the range of 7,580-7,650 and experience resistance at 7,950-8,000, it said.

Luis Limlingan, business development head at Regina Capital Development Corp., on the other hand, said that the main index is seen to continue testing the 7, 900-8, 000 resistance level this week as market becomes less volatile.

However, Limlingan said “In case this week’s trend shifts to bearish, we see 7,650 as the initial key support which traders can take advantage of to accumulate positions.”

Meanwhile, Alexander Adrian Tiu, the senior equity analyst at AB Capital Securities Inc., said that given the domestic market’s expensive price-earnings ratio of 22.9 as of last week, the market is still quite expensive but it is “justified given our very strong economy.”
Nonetheless, he said, “we expect some pull back because of this.”

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