Stock Market

By Judy Dannibelle T. Chua Co, Senior Researcher

Caution ahead of BSP review

Posted on March 24, 2014

ANOTHER bout of volatility could hit the local market this week, as investors adopt a cautious stance ahead of the central bank’s rate-setting meeting, analysts said over the weekend.

“Expect more session volatility this week, as the market sifts short- versus long-term players. Large caps might pause for now, as players digest anticipated policy adjustments with the US Fed’s recent indication on benchmark US interest rates,” Grace C. Cerdenia, senior analyst at online brokerage firm, said.

Joanna M. Capiral, analyst at Papa Securities Corp., meanwhile, said: “The market will likely continue to trade sideways this week, as investors will remain cautious ahead of the Monetary Board meeting.”

Given the steep drop of the main index last week, investors hunting for bargains could help lift the market, Ms. Capiral added, noting that corporate results will provide less guidance this week as most companies have already reported their 2013 earnings.

BPI Asset Management agreed, adding that foreign exchange concerns will also continue to weigh on the market.

“The comment by US Fed Chair Janet Yellen last week caused the peso to depreciate against the greenback, affecting peso-dominated assets including Philippine equities. This may pose some concerns for foreign investors this week and can trigger capital flight,” BPI Asset Management said in a report.

“Moreover, a possible hike in local benchmark interest rates will also be negative for stocks as most companies are valued using discounted cash flow method. We expect trading range to be between 6,210 and 6,360 this week,” it added.

The Monetary Board is set to meet on March 27 to review interest rates, a week after the US Federal Reserve hinted that US interest rates may rise sooner than anticipated.

The Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing and lending rates have been held at record lows of 3.50% and 5.50%, respectively, since October 2012.

But the central bank’s policy rates could change especially after hawkish signals from the Fed. Last Thursday, BSP Governor Amando M. Tetangco, Jr. said that he sees “early measured adjustments” as “ideal” in the Philippine central bank’s policy, which fanned risk aversion towards the local equity market.

The composite index suffered its biggest one-day loss in almost seven weeks last Friday, dropping 1.22% or 78.09 points -- its steepest drop since a 2.15% dive on Feb. 4 -- to close at 6,339.26.

Week on week, the bellwether Philippine Stock Exchange index dropped 51.98 points or 0.81% last Friday from its 6,391.24 finish on March 14, while the broader all-shares index shed 26.45 points or 0.68% to 3,840.27 from 3,866.72 a week earlier.

“The local bourse was initially up at the start of the week on improved risk sentiment buoyed by Wall Street’s lead,” Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc., said.

However, the index reversed its gains as investors reacted to the Fed’s statements that it could remove its monetary stimulus by fall and raise rates six months after.

“While the market already knows about the eventual tapering, it seems to be having difficulty digesting reality,” Mr. Ravelas said.

Manny P. Cruz, market strategist at Asiasec Equities, Inc., on the other hand, said: “We expect the market to recover this week, given that volatility has already seized and investors will focus on first-quarter window dressing.”