LOCAL SHARES may experience more volatility in the week ahead as markets continue to monitor the US-China trade war, with potential upsides in anticipation of the impact of the reserve requirement ratio (RRR) cuts taking effect this Friday.

The benchmark Philippine Stock Exchange index (PSEi) slumped 0.73% or 56.94 points to 7,747.09 last Friday. It was up on a weekly basis by 163 points or 2.2%, thanks to holding firms which jumped 4% and to industrials which climbed 1.4%.

Turnover improved by 22% to P6.99 billion on a daily average last week, while net foreign selling slimmed to P1.23 billion, 16% lower from the week before.

“Expect another volatile week to prevail, with attention glued to the US-China trade war talks and other local headlines,” online brokerage 2TradeAsia.com said in a weekly market note.

The US and China continue their trade spat with no news of potential negotiations. US President Donald J. Trump earlier doubled tariffs on $200 billion worth of Chinese goods, then imposed an import ban on Huawei Technologies Co. Ltd. China has replied with its own tariff increase on US goods and has vowed further retaliations.

“While there are no quick fixes in resolving the trade spat, investors need to see clearer outline how the US and China intend to resolve the impasse by itemizing discussion objectives. This would winnow out unnecessary rhetoric that only discards early efforts, and pacify tension in the business and investing community,” according to 2TradeAsia.com.

The online brokerage also noted that the movement of stocks will be affected by month-end portfolio closing and the effect of the recently announced MSCI rebalancing.

“Cross-country weightings might favor China, while others might also look into safer havens in the securities market over the short run,” the company added.

Meanwhile, Eagle Equities, Inc. Research Head Christopher John Mangun looked to local headlines, highlighting how the RRR cuts taking effect this week will release about P200 billion into the economy. This in turn is seen to spur growth in the succeeding quarters.

“As economic fundamentals continue to improve and government spending starts to pick up, we will see investors gain more confidence which will continue to bring them back into the market which will fuel the rally as it breaks above the heavy resistance level at 8,000. It is only a matter of time,” Mr. Mangun said in a research report.

The analyst added that local investors have started coming back to market, supporting its ascent despite the heavy selling seen from foreign investors.

“We’ve seen massive foreign selling in the last two weeks which means local investors have been picking up the slack and buying equities at much attractive prices than they have been for months.”

Mr. Mangun placed the market’s support level from 7,590 to 7,500, with resistance from 7,800 to 7,840. — Arra B. Francia

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