Stock market expected to remain listless this week

MANILA, Philippines - Given persistent concerns over Europe’s debt crisis and the Presidential elections, the local stock market is expected to extend a listless sort of week as investors take a wait-and-see-stance in terms of the right investment timing.

Last week, the main composite index or PSEi posted its biggest weekly drop since June 2009, closing 148.03 points or 4.5 percent lower at 3,142.05 as traders sold down shares. Big cap stocks like Ayala Corp., SM Investments Corp. and Alliance Global Inc. led the market’s decline.

Analysts said investors still fear that Greece may not make a May 19 deadline to make a debt repayment, which could cause ripple effects throughout the global financial system and further undermine Europe’s shared currency, the euro.

European finance ministers are holding a meeting today to work out a plan to preserve financial stability and prevent future crises like the one that has engulfed Greece

 “The primary force that caused the equities market to tumble last week is Europe’s failure to contain its debt crisis. Investors are increasingly worried that the 110-billion Euro ($139 billion) rescue package for Greece wont be enough. This could escalate into a sovereign crisis reminiscent of the sub prime mortgage meltdown that pushed some major financial institutions into bankruptcy,” AB Capital Securities said.

“As the concerns in Greece intensified, the spread between the three-month dollar London interbank offered rate and the overnight indexed swap rate, a barometer of the reluctance of banks to lend that’s known as the Libor-OIS spread, rose to the most in more than five months, reaching 13.4 basis points. The sovereign debt contagion may spread across Europe, affecting the banking systems of Portugal, Spain and Italy,” AB Capital Securities,” AB Capital Securities further said.

AB Capital Securities said investors were also spooked by concerns of a possible postponement of the national elections due to wrong configurations of the compact flash cards that caused the voting machines to incorrectly read the ballots.

AB Capital said the downward moving average of the main index is an indication that the market maybe turning bearish for the medium term. “The PSEi is now trying to hold above the support line of its one year old uptrend channel. This could be the market’s last lifeline as a breakdown of the channel can push the index below the psychological 3,000 level,” the brokerage house said.