"Investors are likely to remain sidelined until more positive developments filter into the market. Concerns remain that the Senate’s VAT bill version will not raise the revenues needed by government," BPI Capital Securities said in its weekly market report.
Last week, the main index lost 42.63 points or 2.24 percent to close at 1,864.06 mainly due to the delay in the passage of the VAT bill. The Senate’s bill had measures that differed from the one passed by the House of Representatives, raising uncertainties about the final version.
The Senate version keeps the current VAT rate on goods and services at 10 percent but removes the exemptions currently being enjoyed by power utilities and petroleum companies. It also proposed a hike in corporate income tax to 35 percent from 32 which if approved will weigh on corporate profits and may discourage new investments into the country.
The VAT measure will now go through a bicameral committee, where a final law will be created.
BPI Securities said investors are also awaiting the release of first quarter corporate earnings results before they decide to invest more into the market.
AB Capital Securities research head Jovis Vistan said rising gasoline prices and weakening demand for Philippine exports may dampen investor sentiment.
"Inflation has been creeping up due to rising gasoline prices. These inflationary pressures are now snowballing into other issues, such as demands for higher wages and higher domestic interest rates. External trade is also being dampened by growing competition and flat demand," Vistan said.
"The market is having a hard time making any headway in such an uncertain environment. We were originally looking at a two-month consolidation of 1,880 to 1,990. We are still hoping that the market can bounce back and at least form its base at the said consolidation range," Vistan said.
Vistan said the market’s failure to recover can push the index down to as low as 1,750 unless there are new incentives to trade.
However, with the main index very close to its major support level of 1,880, some investors are likely to be on the lookout for opportunities to accumulate as the market is now oversold.
Power related companies, led by First Philippine Holdings, Petron, Aboitiz and Meralco closed lower last week on concerns that the Senate’s VAT bill version lifted exemptions on the power and petroleum.
"The Phisix is short term bearish. It needs to break above 1,907, representing the immediate down trendline resistance, to suggest some shift from the current short term downtrend. The other immediate down trendline resistance is at 1,977," BPI Securities said.
Online stock portal 2tradeasia.com said the prevailing weak tone presents good windows to start considering issues that have declined to attractive prices by reviewing on their fundamental strengths.
"The timing seems ripe to consider commodity-related shares, specifically those that will benefit from investments," 2tradeasia.com said.