Markets likely to remain volatile this wk – analysts

The local stock market and the peso will continue to experience volatility this week on persistent fears about subprime mortgage lending troubles in the US and their potential effects on the global economy, analysts said.

Regional currency and equities markets have taken a beating as investors dumped risky emerging market assets on lingering concerns of a snowballing global credit crisis.

Last week, the Philippine Stock Exchange Index fell 12. 1 percent, closing at 2,884.34 – its lowest level since Dec. 27, erasing its gains this year. The peso hit a three-month low of P46.90 per dollar on Friday with the currency’s losses in the last four weeks at nearly five percent.

“The markets are expected to remain volatile as the US subprime issue will probably take months to figure out. It is hard to say whether the worst is over as volatility brings along with it a ton of risk. It will take a lot of time and data for the market to calm down and confidence to be restored,” said AB Capital Securities research head Jovis Vistan.

“Share prices have undergone considerable erosion in recent weeks, and a selling climax is needed to clear the air before a meaningful recovery can develop,” Vistan said.

Last week, Goldman Sachs and Countrywide Financial Corp. confirmed investors’ fears that credit problems are spreading.

“The local market is so emotionally driven and the dominant emotion now is that of fear. The markets collapsed as fear turned to panic selling, creating a vicious spiral that brought the market to a point no one thought it would be by this time. The usually calm, rational individuals have been overwhelmed by fear when other traders started behaving in a universally bearish manner,” Vistan said.

Vistan said the PSEi needs to first recover above the 3,000 major support level and soar beyond its 250-day moving average line.

“Although we are uncertain about when a selling climax will come or where the market’s bottom is, we do believe that the market is close to a bottom. We remain fundamentally sound as inflation and interest rates have remained low, corporate earnings have exceeded expectations and key economic data have been positive. Sooner or later, emotions have to give way to common sense and the market will correct itself to reflect the true underlying value of stocks,” Vistan said.

Vistan advised investors to stay on the sidelines and wait for market conditions to stability before returning to the market. Long-term investors, however can start accumulating big-cap blue-chip issues.

“We should see some positioning and bargain hunting ahead of the quarter ending window dressing this September. We may see more buying towards the end of the year as we go into festive period of Christmas and year-end window dressing,” Vistan said.