Market likely to sustain upward momentum, say analysts

The market is expected to sustain its upward momentum this week, inspired by the prospect of a rosier economic picture for the country, analysts said.

The favorable economic data released last week was warmly welcomed by investors as the Philippine Stock Exchange composite index (Phisix) closed the week higher by 26.35 points or 2.52 percent week on week to 1,073.69.

Stocks received a shot in the arm as buying in some telecom companies pumped life into an anorexic market. Globe Telecoms, Inc. soared 7.0 percent week on week to P610.0 while Philippine Long Distance Telephone Co. advanced by 2.98 percent week on week to P432.5.

"In the short term, we see some more upward potential in the equity market. The favorable economic data released last week has raised the market’s trading range to a higher plane from 1,035-1,060 to 1,060-1,080," AB Capital’s Jose Vistan said in his market outlook report.

The National Economic and Development Authority reported last week that the first quarter GDP growth was at 4.5 percent. Although it was lower than the 2002 fourth quarter growth of 5.8 percent, it was still better than last year’s comparative growth of 3.8 percent and was at the high end of the government’s target range.

All the major economic sectors posted positive growth with the services sector leading the way at 5.6 percent. The agriculture sector grew by 2.9 percent, industry by four percent and manufacturing by 5.3 percent.

Vistan said the positive momentum may carry forward this week with no major concern hounding investors. "The movement in the equities market has been relatively bullish compared to the past few weeks. Volume has picked up while foreign funds have slowly been coming back," he said.

"Whether the positive sentiments can continue will depend on how the interest rates and other upcoming economic data goes. Interest rates are likely to be volatile as the markets will be speculating on what the BSP will do on their overnight rates and the US FOMC on their Fed Funds rate. A better picture can be painted once the May inflation rate is released next week," Vistan said.

Vistan said the sound fundamentals, healthy liquidity in the system and low interest rates could help inspire investors to add more positions in stocks

The markets have been speculating that interest rates may still go lower as the Bangko Sentral ng Pilipinas (BSP) may decide to lower its overnight rates due to the prevailing low inflation rate.

The drop in domestic interest rates made the local currency susceptible to some depreciation pressure. The peso plunged to a two-month low of 53.35 against the dollar last Thursday as it followed the lead of the other major Asian currencies. The local currency is now beyond the comfort level of P52 to P53 set by the BSP and finance officials.

The local market is also expected to benefit from the improvement in the world’s biggest economy. A report showed that US consumer confidence climbed to its highest level in five months, aided by the end of fighting in Iraq and a rising US stock market.

"Barring any unforeseen negative event, things are looking bright both locally and abroad. For one, the United States is projecting a strong recovery in the secondhalf of the year. Locally, businessmen are beginning to have a positive business outlook for the same period. The only potential drawback is still local politics. The elections are just around the corner and it should keep money on the sidelines despiteimproving fundamentals," Vistan said.