Local stocks are expected to trade within a tight range this week as the market continues to consolidate amid valuation concerns, volatile regional currencies and Wall Street’s sell-off last Friday.
US equities slumped on Friday led down by technology stocks. The Dow Jones fell 0.69 percent, the S&P 500 lost 1.15 percent, and the Nasdaq Composite dropped 2.33 percent.
In a weekly market review, BPI Asset Management said that the market is expected to extend its medium- term consolidation amid volatile currencies in the region and valuation concerns on local stocks.
“We expect the local equities market to trade within the range of 7,070 to 7,250 in anticipation of continued market consolidation. This may be driven by volatility in regional currencies and high valuation of local issues,” BPI Asset Management said.
“Moreover, investors will remain watchful of US economic data that will come out for the week as these would impact the flows in the market,” it added. Among economic data due for release this week in the US are retail sales, producer price index, housing starts and initial jobless claims.
On Friday, the Philippine Stock Exchange index (PSEi) finished trading down 34.54 points or 0.48 percent to 7,167.35 and the broader All Shares index lost 20.93 points or 0.49 percent to 4,244.29.
Jason Escartin, investment analyst at F. Yap Securities Inc., said the release of favorable September inflation data was not enough to support buying sentiment after the International Monetary Fund (IMF) lowered its growth forecasts for the global economy.
In its World Economic Outlook released early last week, the IMF downgraded its global economic growth forecast to 3.3 percent for this year and 3.8 percent for next year, down from its projections last July of 3.4 percent growth in 2014 and 4 percent growth in 2015.
Last Thursday, the Philippine Statistics Authority reported that domestic inflation eased to 4.4 percent in September from 4.9 percent in August as prices of food and non-alcoholic beverages decelerated.
But “this was not enough to boost aggressive positioning, after crude futures suffered sharp declines since the American Petroleum Institute (API) reported a 5.1 million increase in stockpiles during their latest weekly reading,” Escartin said.
In data released Tuesday last week, the API said that US crude inventories increased by 5.1 million barrels in the week ending October 3, more than expectations for a rise of 1.4 million barrels.
Escartin believes there will be pockets of optimism in the market this week since the IMF kept its growth forecast for the Philippines at 6.2 percent for 2014 and with crude futures likely remaining subdued.
“The other perceived ‘saving grace’, is that crude futures pricing would remain subdued, with the assurance supply will be enough against demand growth expectations. Sans weather-related disturbances, this would help limit cost-push inflation variables, consequently, higher real return on investment,” he added.
Despite the expected medium-term consolidation, analysts are still positive that the market trend is intact for the longer term, with some of them forecasting that the PSEi will breach its all-time high of 7,400 points and climb toward 7,800 points.