MANILA, Philippines - Trading on the local stock market will continue to be lethargic this week as foreign institutional managers reassess their investment strategy in Southeast Asia where some indexes surged to record highs.
Last week, the PSEi plunged 272.43 points or 6.3 percent to close at 4,076.68, its lowest level in two and a half months. Big cap issues suffered the biggest blow with financial index posting the biggest decline of eight percent week on week.
“The local market may continue to experience further weakness in the coming sessions. The negative breadth and the selling bias of the strong hand institutional funds may prove to be too much for bargain hunters to outwit. Sentiment has turned so negative that even the release of strong 3rd quarter corporate earnings results have failed to stem the tide,” AB Capital securities said over the weekend.
AB Capital Securities said the end of the earnings season could also mean the lack of strong leads that could entice investors to take positions in the market.
The brokerage house, however, is confident that the market would bounce back and retest the all time high levels. “It may take awhile before we recover from the psychological and emotional shock of the unexpected sell off we saw last week,” AB Capital Securities said.
“The sell off was nothing short of panicky even as the country’s underlying fundamentals remained positive. The market had gone up for nine consecutive months without any meaningful healthy technical correction. This was exacerbated by a downgrade on equities within the overheated Southeast Asian region last week,” AB Capital Securities added.
The market started retreating two weeks ago following Philippine Long Distance Telephone Co.’s announcement of its third quarter earnings results, which showed a 1.4-percent drop in revenues due to weaker revenues from voice call and short messaging service.
Analysts painted a grim picture of PLDT which announced plans to cut some 800 jobs out of its 13,000 worforce due to the intensifying price war in the telecoms sector.
PLDT, trading under the symbel TEL, is the largest listed company by market capitalization and has the biggest weight on the PSEi at 15.4 percent.
AB Capital Securities said the selloff might have also been triggered by a recommendation by Morgan Stanley, a major financial institution, for its investors to scale down holdings in Asia’s best performers this year — Philippines, Malaysia and Indonesia and switch to cheaper markets like South Korea and China.
According to Morgan Stanley, China’s low earnings volatility and relatively contained inflation make it more attractive.
The rally drove the Jakarta Composite Index to 18.4 times earnings, the Philippine Stock Exchange Index to a multiple of 15 and the FTSE Bursa Malaysia KLCI Index to 16.3.
AB Capital Securities said the investors are also increasingly getting worried about Ireland, whose debt crisis has resulted in a weaker euro. Bailing out Ireland could cost as much as 50 billion euros, analysts predicted