Stock market seen moving sideways with upward bias

With all three major events of June 30 now out of the way, local stocks are expected to move sideways with an upward bias as investors continue to position in anticipation of strong corporate results for the first half of the year.

Analysts said domestic political concerns eased a bit after President Arroyo’s June 30 inauguration went on smoothly and the Federal Reserve Board’s decision to hike US interest rates by 25 basis points was already discounted. The transfer of the Iraqi sovereignty happened earlier than June 30 in an attempt to preempt terrorist plans to delay the turnover.

The handover news came as relief to many observers as this could help calm the tense situation in Iraq.

RCBC Securities analyst Chelsea Dipasupil said the market may continue with its upward momentum as investors look forward to the first half earnings results of listed companies which could confirm recovery for most of these listed firms.

The earnings reports are expected to come out by mid-July.

Dipasupil, however, said corrections to the market’s rise may still be encountered as investors remain wary of certain political disruptions (until FPJ concedes), and with a few geopolitical disturbances remaining like the Iraqi militant movements despite the US handover to Iraq).

Last week, the 30-company Phillipine stock Composite Index rose by 11.13 points or 0.70 percent week-on-week to 1,580.35 due to end-of-quarter portfolio window dressing. Most of the market’s attention went to select second-liners like Fil-Estate Land , Metro Pacific Corp. (MPC), Empire East Land Inc. and DMCI Holdings (DMC).

These second line companies have been favored for their improving prospects to recover after years of losses.

"The inauguration of President Arroyo giving her a fresh mandate into the presidency has helped along in giving the market the push. Investors likewise have been relieved of the political concerns related to the outcome of the elections. Now that Pres. Arroyo, has been proclaimed and inaugurated, any protestations may find difficult hurdles," Dipasupil said.

In her speech before her inauguration, President Arroyo sought reconciliation with her political rivals and pledged to promote economic growth and development in her new six year term.

She presented a 10 point program, which is expected to boost the economy’s prospects for the next six years.

Among President Arroyo’s promises were the creation of 6 million jobs, a balanced budget, crack down on tax cheats, greater support for education, and automated elections.

The fresh mandate from the people gives President Arroyo greater confidence and leeway to pass and implement the reforms that were started out in the last three years. With a majority of the administration candidates winning in the recent Senatorial line-up, Pres. Arroyo may find greater ease in passing laws.

Dipasupil, however, said the market will await initial results of the 10-point agenda that Pres. Arroyo has set out, before any sustainable uptrend can ensue for the market.

Grace Cerdena of stock portal 2tradeasia.com said the market may move between the 1,580 and 1,610 range as local investors scout for enticing leads that could push barometers higher. She said another telco-led rally might cushion possible declines, supported by the rise of PLDT’s ADRs.

"While some short-term players cash-in temporarily until they get feelers how latest local inflation data would turn out this week, indications from monetary authorities to maintain benchmark rates should limit descents," Cerdena said.

Another issue that might dampen market sentiment is the warning issued by the Fitch Rating Agency last week of a possible credit downgrade as it pinpointed the problems of the National Power Corporation and its possible repercussions on the government’s fiscal and consolidated budget deficit.

For now, the ratings agency is maintaining the country’s long-term foreign and local currency sovereign ratings at "BB" and "BB+," respectively.