Market seen testing 1400-1450 mark as investors stay cautious

After plunging past the 1500 support level, the 30-issue Philippine Stock Exchange index (Phisix) will be testing the 1400-1450 range anew as the dearth of market uplifting news continue to undermine investor confidence in the local bourse.

While some players think share prices have bottomed out, making a good number of stocks ripe for picking, the general sentiment remains on a cautious mode, as rising interest rates and the weaker peso further inhibit investors to take greater exposure in the equities market.

Both the Phisix and the peso sank to 19-month lows at 1478.68 points and an exchange rate of P41.67 to a dollar, respectively, at the end of trading last week.

The downturn was linked to the US Federal Reserve's decision to hike key interest rates by 50 basis points or half a percentage point to 6.5 percent in order to tame rising prices brought about by an overheating economy.

The move, in turn, forced the Bangko Sentral to undertake its own version of an increase in overnight rates, moving at a more aggressive phase via a two-step hike of 50 basis points each, as the peso succumbed to speculative pressure.

Rising interest rates discourages corporate expansion and increases the cost of their debt repayments, forcing a shift in fund placements to the more stable government securities and bond market from the portfolio or equities market.

It has been reported that as much as $3-billion worth of portfolio or stock investments have left the country in the first four months of the year, as foreign fund managers take positions in higher-yielding markets overseas.

At the PSE, foreign investors have been consistently dumping local stocks with net selling positions in practically all trading sessions this year. With a thin daily trading turnover of an average of just over P1 billion so far this year, net foreign selling have totalled P6.3 billion.

PCCI Securities and Brokers Corp. research head Gonzalo Bongolan said the limp market could be given a boost by the technical buying spree of institutional investors, particularly the government financial institutions who would pick on oversold blue-chip stocks like PLDT, Meralco, San Miguel and the Ayala group to hold over the medium to long term, but the underlying negative mood still weighs heavily hence a deeper fall could be expected.

He said the imminent slash in the country's weighting among Asian markets in favor of Malaysia could further take its toll on the market which has been subjected to a lot of battering: from the BW scandal, the bank runs, the Mindanao hostage crisis, bombing threats, and lately the interest rate hike and falling currency.

The Morgan Stanley Capital Index, a well-observed and monitored basket of Asian stocks, will trim down a portion of the Philippines' weight from three percent -- one of the lowest in the region -- to transfer to Malaysia, whose corporate and economic growth have been better than than expected.