Share prices to take cue from US-Iran peace deal

MANILA, Philippines — The local stock market is expected to take cues this week from the situation in the Middle East, particularly on developments on the peace deal between the US and Iran.

The Philippine Stock Exchange index (PSEi) staged a strong rally early last week, climbing back above the 6,200 level, but finished in red territory last Friday at 6,135.35. Still, the PSEi surged by 3.81 percent week-on-week.

“Last week, the US and Iran have already signed a memorandum of understanding where both approve to further work on a permanent peace deal and reopen the Strait of Hormuz. This caused global oil prices to decline, a source of relief for the market,” Philstocks Financial research manager Japhet Tantiangco said.

“However, risks of disagreement and a reversal of current developments remain. If cracks within the interim deal appear, we may see a pullback in the local bourse,” he said.

Over the weekend, it was reported that Iran issued a renewed order to close the Strait of Hormuz due to ceasefire violations.

Tantiangco said the prospect of further tightening may also weigh on market sentiment this week, after the Bangko Sentral ng Pilipinas raised policy rates by 25 basis points and signaled the possibility of more rate hikes down the road to bring inflation back to the target.

“Taking into consideration all the aforementioned factors, investors are advised to accumulate shares with caution,” he said.

2TradeAsia.com, meanwhile, said the combination of easing energy costs and defensive-but-no-longer-panicking monetary policy calls for some releasing in capital, supporting the case for 6,000 as a base.

However, the online arm of F. Yap Securities Inc. said upside targets must remain realistic, noting that what is likely to keep the PSEi from breaking through its next major resistance of around 6,600 is the concentration of liquidity events in the third or fourth quarter, which will continuously cap broader index upside by absorbing finite secondary market capital.

“In the short-run, monitor US-Iran talks as both parties have track records of erratic diplomacy, and related headlines will dictate broader risk sentiment,” it said.