Shares to rise on signing of US-China trade deal

Font Size

By Denise A. Valdez

THE MAIN INDEX is seen to be buoyed by global events in the coming week as eyes are focused on the scheduled signing of the Sino-US trade deal on Wednesday.

The 30-member Philippine Stock Exchange index (PSEi) ended last week’s trading lower by 20.87 points or 0.26% at 7,776.77 on Friday. On a weekly basis, the PSEi was down 80% amid its hot-and-cold performance during the first full week of trading for 2019.

Average value turnover last week inched up to P5.6 billion from P5 billion in the week prior, as foreign selling increased to P624 million from P505 million.

Online brokerage said the local market’s performance is a reflection of last week’s headlines, which was filled with news on the US-Iran tension overseas, and back home, on the signing of the national budget and data showing that headline inflation averaged at 2.5% last year.

“Local shares fell, pulled by geopolitical tensions in the Middle East following a US air strike that led to the death of Iran’s top military official, and a subsequent retaliation from Iran. Losses were trimmed, however, on President Duterte’s approval of the 2020 budget, plus 2019 inflation of 2.5% printing within BSP’s (the Bangko Sentral ng Pilipinas) target,” it said in a market note.

Heading into this week, the brokerage said one of the biggest catalysts will be the signing of the phase one trade deal between US and China in Washington on Jan. 15.

“2020 fired off with an emotional first full week of trading (albeit with forgettable turnout), with interest likely to spillover [this] week (US-China trade deal phase one signing + timetable for phase two),” said.

“Monitor turnover buildup on fundamentally well-revered stocks, as (fourth quarter) earnings reporting season nears, historically opening early February,” it added.

It also noted there is a “mispricing” in the market at present, as the country’s economy is supposedly projected to grow yet it does not translate to the PSEi’s performance.

Referring to the P4.1-trillion 2020 budget and the 6.5-7.5% gross domestic product growth forecast of the government, said: “An amalgamation of these will likely bring the local economy to historically unprecedented levels — and yet the PSEi trades at a mere 14x forward PE (price–to-earnings ratio), versus its 10-year average of 18x, and five-year average of 19x.”

“This is mispricing — at least to mean reversion advocates and/or seasoned players that can stomach and wait,” it added.

Considering all things, the brokerage said it expects immediate support for the week at 7,600-7,700 and resistance at 7,900.