Stocks seen to trade sideways

The stock market is expected to trade sideways this week albeit on a negative bias considering that most stocks have already achieved overbought levels, analysts said.

Some analysts, however, were quick to point out that the market may benefit from a potential follow-through buying, encouraged by the move of fiscal authorities to upgrade economic growth forecasts for the year and hints that a credit rating upgrade is in the offing.

Last week, the main composite index fell 0.1 percent at 2,992 as investors took profits in select blue chips which had a good run up towards the end of 2006.

AB Capital Securities’ Erwin Balita said: "The current consolidation is expected given the exuberant yearend rally that resulted in a seven percent gain for the index in December alone. We won’t mind seeing the market trade at the 2,850 to 3,020 range for the meantime."

"We believe that positive catalysts that will eventually influence the market’s uptrend are slowly being realized: The latest drop in local rates (T-bills fell to historical lows of 3.795 percent) will force investors to look for higher yielding assets such as equities; indications of a credit rating upgrade are looking more imminent on indications that the government may pay more of its debts ahead of schedule," Balita said.

S& P continues to be optimistic on the country’s outlook this year, especially if the privatization of the energy sector gains further traction. The credit rating agency noted in a news report that the government was able to have reduced its fiscal deficit from 2.1 percent of GDP in 2005 to only 1.5 percent in 2006.

Stock portal 2tradeasia.com said local economic managers’ move in raising macroeconomic targets this year like the GDP growth to 6.1 percent to 6.7 percent should keep sentiment afloat in equities, reinforcing expectations of improved corporate earnings prospects for 2007.

2tradeasia.com said interest might revert to large-cap stocks, specifically those that will have improved cash flow prospects this year. "The series of early redemptions and/or debt retirement should free up cash resources for more productive undertakings, and help improve shareholder value. We affirm our positive reading on the energy/power sector, as well as those tied to infrastructure undertakings," 2tradeasia.com said. Immediate support is seen at 2,2980 while resistance is at 3,020-3,050.

AB Capital Securities said the market should continue to encounter some challenges in breaking out of the 3,000 resistance level. The main index’s trading range will be between 2,850 to 3,000," the brokerage house said.

Power related firms like PNOC-EDC, First Philippine Holdings and Aboitiz Equity ventures outperformed this week, boosted by bullish investor interest in the government’s power asset privatization program. EDC, FPH and AEV managed to reach new 52-week highs of P5, P73 and P9, respectively.

Meralco B shares, on the other hand, moved back up to P58.